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US-China Temporary Trade Truce Boosts Riskier Currencies, Knocks US Dollar

Pound News: Sterling Remains Unappealing on Broad Brexit Uncertainties

The Pound fell against most major currency rivals yesterday, as markets opened against a backdrop of fresh criticism of UK Prime Minister Theresa May’s Brexit plan. In particular, the UK government has been criticised for withholding details of legal advice given to it over the Brexit deal.

Sterling demand was little-affected by the morning’s UK manufacturing PMI, which beat analyst expectations but still indicated that manufacturers were concerned about the outlook.

UK construction PMI data will be published today, and Bank of England (BoE) Governor Mark Carney will hold a speech, but the focus for Sterling investors will remain on UK support for the Brexit bill.

Euro News: Underwhelming Eurozone Data Limits Shared Currency Strength

The Pound to Euro exchange rate slipped on Monday, as Brexit jitters combined with a weaker US Dollar (USD) left the Euro more appealing. The Euro’s strength is often negatively correlated to the US Dollar.

However, while the Eurozone’s final November manufacturing PMIs came in higher than projected, the results still showed that the economy was slowing. This made investors hesitant to buy the Euro too much.

No major Eurozone data will be published today, leaving the Euro’s movement to react to strength in rivals like the Pound and US Dollar.

US Dollar News: Safe Haven Dollar Sold as US-China Trade Truce Announced

The US Dollar weakened on Monday as investors reacted to an announced US-China trade truce by indulging in riskier assets and selling safe haven currencies like the US Dollar.

Despite this, the Pound to US Dollar exchange rate still fell throughout the day. The US Dollar remained fairly appealing compared to the Brexit-battered Pound, particularly as US data including manufacturing PMIs continued to print strongly.

IBD/TIPP economic optimism data for the US will be published this afternoon, but is unlikely to be highly influential. Investors will remain focused on US-China trade developments.

Canadian Dollar News: Trade Developments Send CAD Surging

Hopes that the US and China would avoid further escalations in trade tensions amid a truce, and that global trade tensions would cool overall as a result, left the trade-correlated Canadian Dollar much more appealing today.

On top of the perceived de-escalation in US-China tensions, the Canadian Dollar was supported by a surge in oil prices. Oil, Canada’s most lucrative commodity, soared over 4% in reaction to the US-China trade news.

Q3’s Canadian labour productivity report will be published today and may influence the Canadian Dollar, but oil prices and risk-sentiment will remain the primary driver.

Australian Dollar News: AUD Strong despite Mixed Australian Data

Yesterday’s Australian data had little impact on the Australian Dollar, as the currency surged in reaction to news that the US and China had announced a temporary trade truce.

The US-China 90-day truce means there will be at least three months with no escalation in US-China trade issues. The nations will be negotiating during this time, in the hopes of reaching some kind of agreement.

Reaction to US-China news will continue to drive the ‘Aussie’ today, but reaction to the Reserve Bank of Australia’s (RBA) December policy decision may prove even more influential if it surprises investors.


Upcoming Data

Tuesday, 4th December

00:00    Australian TD-MI Inflation Gauge

00:30    Australian Current Account

03:30    Reserve Bank of Australia Policy Decision

09:30    UK Construction PMI

13:30    Canadian Labour Productivity

15:00    US IBD/TIPP Economic Optimism

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To keep up to date with the Euro, visit the Euro blog in our Currency News section.


David Bayliss

Currency Trader

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