Marius Paun | London, UK | Senior dealer | Friday, 14th June 2019
It seems the US has reached an agreement with Mexico and President Donald Trump has now tweeted that tariffs would be suspended indefinitely. So much for ‘tariffs are a beautiful thing’ then… As a result, the greenback was given a lift, despite the weakest US employment report released less than 24 hours before. Later this month we could see the re-opening of negotiations between China and US at the G20 meeting, although it’s widely understood that a resolution of trade tensions between these two will require a lot more effort.
We saw a larger than anticipated trade surplus for China in May due to higher than expected exports (despite trade dispute escalation), coupled with lower than expected imports. At the same time, Chinese state-owned Bank of Communications International said ‘weakened valuation of the yuan is decided by the recent tough trade environment China is facing’ but added that they believe the yuan will drop below 7 within 3 months.
The race for the UK Prime Minister has seen the first round of voting which the clear favourite, Boris Johnson, has won by quite some margin after promising an income tax cut. He has already expressed his views that Brexit will happen on October 31 with or without a deal. However, despite previous concerns about a possible hard Brexit hurting the pound, cable (GBPUSD) was trading conditions were stable, around 1.2650, Friday morning.
Meanwhile, the ECB officials are starting to fear the market is losing confidence in the region inflation’s control which could force another round of stimulus to re-establish control. So much so that governing council member Olli Rehn said the central bank could strengthen forward guidance, cut interest rates and relaunch quantitative easing.
Australia’s (May) employment data release showed mixed signals, with an addition of 42.3k jobs (hugely above the expectation for 16k gain), while unemployment rate came in at 5.2% versus 5.1% prediction. Aussie dollar moved lower with many now seeing an increased chance for further easing in the coming months.
Marius Paun | London, UK | Senior dealer | Friday, 07th June 2019
The US dollar started the week on the back foot following growing speculation that a rate cut is back on the table at Federal Reserve. There is no end in sight for the trade dispute with China and its increasing impact on global markets is definitely making investors nervous. The week ended with disappointing non- farm payroll figures of 75K versus the expectation of 175k, which leads to the US dollar expected to lose value further.
Replying to repetitive accusations against his country’s policies, China’s foreign ministry said that every setback in trade talks is ‘due to US breaking consensus’. Amid stalling negotiations, it is unclear if China will devalue its currency in retaliation to US tariffs or employ a more targeted approach i.e. restrict exports of rare earths to the US (China accounts for more than 70% of global output).
Back in the UK on the Brexit front, Tory leadership contender Boris Johnson said if he gets in ‘we’ll come out of Europe with a deal or no deal by 31 October’. The no deal option is causing a lot of uncertainties within UK, which could possibly cause sterling to drop across the board.
European Commission reportedly has sent a letter to Italy blaming it for a violation of debt reduction rules and is preparing to apply a $4 billion fine.
Responding to this, Italian deputy prime minister Luigi Di Maio commented the EU made ‘absurd’ requests on investments. Away from domestic squabbles, economic fears spread as the European Central Bank signalled its readiness to embark on a fresh round of bond purchases. So we have a dovish signals from both the ECB and the Fed, but the euro is the currency currently coming out stronger breaking above 1.13 against the greenback.
In a move that was widely anticipated, the Reserve Bank of Australia’ cut cash rates by 25 basis points from 1.5% to 1.25% at its latest monetary policy meeting on 4 June. That represents a record low for Australia and is the first slash by the central bank since August 2016.
The decision was taken to support jobs growth, achieve inflation target as well as to deal with a weakening housing market.