The USD received support overnight after Dallas Fed President Robert Kaplan said yesterday “the appropriate path of policy is to stay where we are”. In other words, no moves on interest rates. Additionally, Boston Fed President Eric Rosengren said, “Hopefully this is going to be a boring year for monetary policy”. These remarks from the two Fed officials that it is unlikely there will be an economic downturn in the coming year, given generally positive conditions, gave a boost to the USD and US equity markets.
EUR/USD trading near its overnight lows despite better than expected German IFO Business Climate Index, which saw a move higher to 96.3 from the expected 95.5 and last month’s reading of 95.1. ECB President Lagarde is speaking in Frankfurt this morning, but there is no surprises expected from that. Her speech should focus on the challenges ahead regarding monetary policy. While the EUR has moved up against the GBP, it is still having trouble rising against the USD.
The British Pound is the main mover overnight as traders are now concerned that there may be a no-deal Brexit occurring at the end of December 2020. According to Prime Minister Boris Johnson, the UK will attempt to reach a new trade deal with the EU by that deadline. Given that the Conservatives control parliament, Johnson will attempt to put into law that there will be no extension beyond the deadline. GBP was down almost 3% against the USD since Friday when it approached levels not seen since May 2018. While many traders saw the correction from highs as a “buy the rumor, sell the fact” reaction to the election. This brought “Brexit fears” back into the trading equation. The GBP was also lower against the EUR and JPY. The Bank of England meets tomorrow and it is expected to keep rates unchanged at 0.75%.
USD/JPY has moved a bit lower as once again traders who are concerned with Brexit are moving back towards “safe haven” purchases. The renewed risk of a no-deal Brexit has overcome the optimism of the US-China trade agreement. The market can expect these types of moves to continue until there is a clearer path regarding Brexit.
Canadian dollar is better bid this morning as CPI is released later today which is expected to come in higher than last month’s 1.9% number and remaining between the inflation band of 1-3%. CPI is considered the most important release according to the Bank of Canada. Higher crude oil prices are also helping the loonie.
Chinese Foreign Ministry spokesman Geng Shuang stated yesterday during a briefing in Beijing “Limiting tech exports will not disrupt China’s innovation or development." The markets were not moved by these comments as traders still await further details on the US-China trade agreement.