The US House of Representatives passed legislation yesterday in support of Hong Kong, with China expressing “strong indignation” over the actions. The Hong Kong Human Rights and Democracy Act would end Hong-Kong-US special trading status unless the US can certify that Hong Kong authorities are respecting human rights. Foreign Ministry spokesman Geng Shuang warned that China would counter the proposed bill with strong measures. Causing yet more tension between the two countries, this could have a negative effect on the trade talks.
A news report from Bloomberg said that German officials are considering adding some fiscal stimulus measures if the economic outlook deteriorates further. The EUR will remain sensitive to Brexit and trade talks. Traders remain focused on these news items as opposed to any economic releases - ZEW's index of economic sentiment "recorded a very slight decrease" which did not affect the euro.
The British Pound moved higher overnight as news was leaked that the UK and EU are getting close to making a Brexit deal in Brussels. According to reports, both sides have agreed on most of their differences during these negotiations, with sterling leading the field yesterday for a fifth successive day, adding an average of 1.3%. UK Prime Minister Boris Johnson has made a number of concessions, including the fact that he now accepts the fact that there will be customs checks between Northern Ireland and the rest of the UK. While many of the UK Conservatives seem optimistic that a deal will be reached, there are some members of Parliament who are more skeptical. Members of Northern Ireland’s DUP stated that they need a deal that “respects Northern Ireland’s constitutional position”. PM Johnson needs DUP support for any deal to pass. So we are close, but not at the finish line yet.
As Brexit negotiations move towards a positive conclusion, there is more appetite for riskier trades. As risk-on trades are put into play, the potential for USD/JPY to continue higher remains. There is always the chance of rush to safe haven trades if the trade talks and Brexit talks hit another impasse.
The Canadian Dollar moved higher as Brent Crude Oil Futures moved higher, based on signals from OPEC that further supply cuts are possible. As a commodity-based currency the Canadian Dollar is sensitive to any oil news. As traders iobuild bullish oil positns, the Canadian Dollar may benefit.
China’s Consumer Price Index (CPI) rose to 3.0% year on year in September from 2.8% in August. The market expected an increase of 2.9% so this beat market expectations. According to reports, core inflation has remained unchanged from August. Analysts will now focus on third quarter GDP release on Friday, which is expected to ease to 6.1% year on year from 6.2% in the second quarter.