Dollar starts week on the back foot as trade tensions ease

December 3, 2018

GBP. Sterling fell half of a percentage point last week but has clawed it all back this morning as the G10 jumps on a patch of dollar weakness following the G20 meeting in Argentina. Today marks the opening of a big week for sterling as Theresa May and co take to Parliament to kick-start five days of debates. Today’s main event will be Attorney General Geoffrey Cox’s “political summary” statement to MP’s regarding the legal advice he has provided the government on the Brexit deal. Pressure is mounting on the government, with Labour stating that they will appeal for the government to be held in contempt of parliament if the full text of the legal advice is not released. Furthermore, the government’s coalition partner, the DUP party, has stated they will abandon May if the draft deal doesn’t get through Parliament on Tuesday next week, and Labour has also threatened to trigger a vote of no confidence if this occurs, meaning plenty of downside risk to the pound remains.

EUR. The euro lost ground on Friday after European equity markets closed lower in anticipation of the G20 meeting over the weekend. European stocks fell by 0.3% on the day while the German´s most sensitive shares to Chinese imports reduced by 0.4% due to a truce on trade tensions not predicted by European investors. The breakthrough in talks paints a picture of a possible de-escalation in trade tensions between the two powers. With China announcing cuts in auto tariffs the German car industry may start feeling a comforting respite. The punishment of the German auto sector previously weighed on the single currency, but developments over the weekend look optimistic, causing the euro to open today’s session with a 0.42% jump against the dollar. Today the Eurozone Manufacturing PMI is released at 09:00 GMT.

USD. The broad dollar DXY index reversed all of the gains made on Friday as a risk-on move swathes the market after concessions are made by President Trump and Xi. The barebones deal reached gives both sides 90 days of solace from any escalating trade threats, but the downside risks remain in place. Trade talks between the US and China are set to begin again and continue over the course of the 3-months but hurdles on Intellectual Property and tech may prove too high for both sides to clear in this time frame.

CAD. The loonie and other resource sensitive currencies lead the pack against the dollar this morning after a bearish period for commodities. The loonie has rallied near a percentage point at the time of writing after pouncing on the risk-on move this morning. This week looks pivotal for the Canadian dollar going forward with a Bank of Canada meeting and OPEC’s expected production cut on Thursday. Even though the BoC is largely expected to hold rates on Tuesday, the statement could shed some light on their outlook and plan for 2019.

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