Dollar rallies as US-Sino relations ease

January 17, 2019

GBP

Yesterday saw another choppy session for GBPUSD as Theresa May stared down another question on her authority. After winning the vote of no confidence, brought up by Labour leader Jeremy Corbyn after the historic defeat of the withdrawal deal on Tuesday night, the Prime Minister took to the steps of number 10 to slander the opposition leader for not planning to attend the cross-party talks. Sterling led gains against the dollar in the G10 yesterday, followed by oil-sensitive currencies such as CAD and NOK. This morning, however, sterling has struggled to cling on to yesterday’s gains as the question “what next for Brexit?” creeps back into the picture.

EUR

The euro closed the day on the back foot, adding to the half a percentage point of losses against the dollar in the last 2 days. The single currency weakens further as ongoing events from Brexit signals to better odds towards a soft Brexit deal or an extended departure date of the UK from the European Union. No relevant piece of data was released yesterday, whereas today the Eurozone Consumer Price Index could have the potential for wider currency volatility even if the figure brings slight surprises relative to expectations. Meanwhile, forthcoming Brexit talks are expected soon with EU leaders, although the failed May´s deal remains “the best offer” Brussels can deliver.

USD

The dollar continued to trend upwards in yesterday´s session and finished the day with gains against most of the G10 currencies. The Bloomberg dollar index has risen now for three days in a row, heading to its best run since November. Risk-off flows could be the dominating force for dollar strength, with Brexit woes, weak oil prices and political uncertainty framing the general picture. Results from the Beige Book, meanwhile, add to the modest prospects for the US economy this year, as the Fed still predicts a positive but weaker outlook in the run up to their rate announcement at the end of the month. Only 8 out of 12 districts reported moderate growth, with 2 slightly positive and 2 suggesting flat activity. Trade talks, on the other hand, continue steadily with a visit from the Chinese Vice Premier Liu set in the US for the end of January, as announced by a Ministry of Commerce´s spokesman. Meanwhile, trans-Atlantic tensions look set to rise as reports suggest that Donald Trump is teetering on enforcing steeper tariffs on automobiles to force Brussel’s hand to open up negotiations on American agricultural products. Today, labour data at 13:30 GMT and consumer confidence at 14:45 will dominate the economic calendar as the government shutdown continues.

CAD

The loonie, matched with the Norweigan krone, advanced against a broadly strengthening US dollar yesterday as oil prices begin to firm once more. The loonie has struggled to sustain yesterday’s gains as crude prices take another hit after record production levels from the US last week are reported. Further bad news was released yesterday for the loonie as the US Department of Energy released figures showing that inventories of refined crude products have continued to stack up despite the buildup of inventories in unrefined crude falling. This just shows the mismatch in the oil market at the moment as demand is struggling to soak up the glut in supply despite oil prices remaining at suppressed levels.

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