FX Market Overview for November 7, 2019

The main driver of currency flows this week was news from the trade front. Earlier, the prospects for a settlement of the conflict were overshadowed by talk of a possible postponement of the first phase of the deal to December. However, sentiment changed sharply after China’s Ministry of Commerce said it was ready for the gradual abolition of tariffs. Both countries want to document the first phase of the deal by the end of the week, and the U.S. has confirmed the possibility of cancelling tariffs. The U.S. government does not agree with this decision, but the very possibility of tariff cancellation has led to a sharp increase in the foreign exchange and stock markets. The index updated its historical high, while the pair reached its own 5-month high. Conflicting statements can still be seen, including the words of senior U.S. economic adviser Larry Cudlow that signing the first phase of the deal will require serious concessions. As our colleague Boris Schlossberg noted yesterday morning, “there have been as many ups and downs in the history of US trade relations with China as there have been in the battle for Brexit.” But at the moment the news shows progress in agreeing a deal, which was enough to maintain an appetite for risky assets. However, the low-key rally and dollars also reflect the market’s caution. In the absence of news that could call into question the progress in the negotiations, USD/JPY could strengthen to 110.

in turn, fell to a two-week low. The Bank of England has decided to keep interest rates unchanged by seven votes to two. about the possibility that the votes of the members of the Committee would be divided, but the split in the ranks of the regulator still took the market by surprise. Michael Saunders and Jonathan Haskell voted for an immediate 25bp rate cut. The central bank also lowered its GDP forecast for 2020 and 2021 and the short-term inflation forecast, which would imply one rate cut over the next three years. According to the head of Carney, the global picture has worsened, the uncertainty of the Brexit issue has hit investment in the British economy, and the deal between the UK and the EU could change the investment picture. Uk growth has now slowed below potential levels, and there has been evidence that consumers are becoming more cautious. All this means that the risks to the UK economy are downwardand, if they materialize, the economy may need support. So despite the Brexit deal, the pound could suffer from the central bank’s cautious rhetoric. We have long said that a deal with the EU will only provide a short-term strengthening of the currency and economy, after which the real consequences of Brexit will come.

fell to a three-week low amid a slowdown in Germany and weak EU economic growth forecasts. The European Commission lowered its forecast for the region’s economy, explaining the move as a tension in world trade and the view that growth should not be expected to resume significantly in the next two years. The Commission believes that “a surge in trade tensions and unprecedented uncertainty over trade policy are likely to have caused long-term damage to world trade”. Despite being more optimistic (the central bank forecasts modest economic growth in the second half of the year), investors continued to put pressure on the euro.

On Friday, the Canadian dollar will be in the spotlight, as data on the labor market is expected to be published. Given the pessimism of the Bank of Canada and the sharp drop in the employment component report from IVEY, we expect a significant slowdown in growth. has not yet broken the 1.32 mark, but the upcoming release may help.