Weekly currency news: the US-China trade truce hurts the dollar
The US dollar has opened the week with moderate declines after US and China agreed for a 90-day ceasefire on their trade war during this weekend’s G20 meeting, and boosted investors’ demand for riskier assets.
The market has welcomed the compromise between the world’s two largest economies to hold any new tariffs on each other aiming to reach a more permanent arrangement in that period. The euro and the pound have pared Friday’s losses, while the Australian and the New Zealand dollar posting sharp advances.
With this in mind, we expect global trade tensions to remain the focus of attention this week, without disregarding other interesting events like the US non-farm payrolls report, BoE Carney and Fed Powell’s conferences or the monetary policy decisions of the Bank of Canada and the Reserve Bank of Australia.
- EUR/USD: downside contained above 1.1200
- GBP/USD: trading sideways around 1.2800
- EUR/GBP: bounces at 0.8800 and returns to 0.8900
- USD/JPY recovery stalls below 114.00
Main events this week:
The US calendar will open on Monday with the ISM Manufacturing PMI Index. According to the market consensus, business activity in the manufacturing sector accelerated again in November after two consecutive declines, which might improve confidence in the US economy and strengthen the dollar.
On Wednesday and Thursday, we will be attentive to Fed Powell’s conferences. Last week, Powell surprised the markets hinting to a pause on the bank’s monetary tightening pace and the investors will be eager to know how that will change the bank’s rate hike calendar. The risk for the dollar is on the downside.
Also on Thursday, the Commerce Department will release the US factory orders figures for October. Another manufacturing activity indicator that has been showing moderate signs of weakening, thus, another downbeat reading might add selling pressure on the US dollar.
The most important event in the US calendar will be the US non-farm payrolls report. With only some days ahead of the latest Fed monetary meeting, a weak employment reading would cast doubt about the widely expected fourth interest rate hike of 2018 and might hurt the dollar.
In the Eurozone calendar, on Monday, November’s Markit Manufacturing PMI reading is expected to confirm that the sector activity grew at the slowest pace in more than two years, therefore, we expect the impact for the euro to be neutral to negative.
On Friday, Eurostat will release the final reading of the third quarter’s Eurozone Gross Domestic Product figures. The preliminary estimation showed that the economy grew at a 1.7% yearly pace and only a relevant revision of these figures would have some impact on the euro.
In Japan, the only event worth mentioning will be the leading and coincident economic indexes, a set of indicators analyzing the performance and the perspectives of the Japanese economy that might have a moderate impact on the yen.
On Tuesday, the Reserve Bank of Australia will release its monetary policy decision. The bank is widely expected to leave its benchmark interest rate at the current 1.5%, thus the focus will be on the ensuing statement for clues about the next move.
On Wednesday it will be the turn for the Bank of Canada’s interest rate decision. The markets expect the bank to maintain the benchmark rate in December and hike in January, although the recent decline on oil prices is starting to dampen hawkish expectations. The risk for the Canadian dollar is skewed to the downside.