Trump threatens further tariffs and props up USD

November 28, 2018

GBP. Speculation continues to mount regarding the likelihood of a deal being passed through Parliament in two weeks time. Following yesterday’s plunge after Trump’s comments and reports that May will find support if she gives a definitive resignation date, sterling starts this morning subdued. However, the next piece of political punditry could set sterling off in either direction, especially given ministers are set to publish the government’s first economic analysis on the impact of May’s deal. Bank of England Governor Mark Carney holds a press conference at 17:45 GMT on the Financial Stability Report that is released at 16:30 GMT. Further comments regarding the consequences of a hard deal on the economy are likely, but this is nothing the market hasn’t heard before.

EUR. The euro softened across the board yesterday as hopes of a lower Italian budget deficit are rising, but far from materialising just yet. The Dutch Central Bank published research about how the Eurozone economy can actually become a beneficiary of the US-Sino trade war, as both parties might shift parts of their trade flows to a party that doesn’t slap tariffs on their exports. The big caveat mentioned in their report is how potential car tariffs could especially harm the large German car industry. Nevertheless, European Union Trade Commissioner Cecilia Malmstrom sounded optimistic yesterday as she described trade talks with between the EU and the US as “constructive”, dabbing some of the proverbial sweat of the forehead of German car industry moguls. This morning sees M3 Money Supply at 9:00 GMT.

USD. Trump’s warnings on further tariffs on Chinese goods were all the greenback needed for a boost yesterday, while critical remarks from President Donald Trump about Federal Reserve Chair Jerome Powell didn’t harm USD prospects much. Trump can’t seem to resist being straight-talking when he told the Washington Post “So far, I’m not even a little bit happy with my selection of Jay”, referring to the Fed chair by his nickname. Trump remains critical of the hiking path the Fed is currently on, which he deems overly aggressive and threatening to choke US growth by tightening monetary conditions too strongly. However, his scolding of the Fed so far has little market impact, as the independence of the policy of the Fed is unquestioned – for now. Today is a busy day for the US data calendar with the second reading of Q3 Gross Domestic Product growth at 13:30 GMT, released together with the Goods Trade Balance. 15:00 sees New Home Sales, while the Jay of monetary policy is on the mic tonight at 17:00, dropping lines on financial stability.

CAD. The loonie just can’t catch a break this week even though oil prices are posting a very mild bounce from the lows of $50 a barrel. S&P reaffirmed there AAA/A-1+ stable rating of Canada, but the loonie is currently fixated on the direction of oil and just can’t fight off the strengthening dollar. Friday may be the only day in which it can claw some ground back with GDP data released and the beginning of the G20 meeting – where some expect a deal to be struck between Trump and Prince Mohammed bin Salman on the future oil price target.

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