· The yen was pinned near a six-week low versus the dollar on Friday as signs the United States and China were narrowing their differences over trade ahead of key talks decreased demand for safe haven assets.
That nudged the yuan up to near four-week highs against the U.S. currency in offshore trade, while the euro held steady after swinging wildly on Thursday following the European Central Bank’s surprise decision to resume government debt purchases from November to support a flagging economy.
In the very short-term, guarded optimism about a resolution to the U.S.-China trade war should continue to push Treasury yields higher and weigh on safe-haven currencies.
However, this confidence could be short-lived as the U.S. Federal Reserve is widely expected to cut interest rates next week while the ECB’s easing places pressure on the Bank of Japan to follow suit.
· The dollar rose to 108.265 yen, the highest since Aug. 1.
The greenback was up 1.2% versus the yen this week, on course for its best weekly performance since November 2018.
The dollar has also drawn support from a spike in U.S. Treasury yields, with the benchmark 10-year yield at a five-week high.
China’s financial markets were closed for a public holiday on Friday. In offshore trade, the yuan rose 0.3% versus the dollar to 7.0459, the strongest since Aug. 19.
· Sterling was up 0.3% on the dollar this week, on course for its second week of gains after the British Parliament moved to block a so-called no-deal exit from the European Union.
The pound remains vulnerable, however, given the continuing uncertainty over how lawmakers will decide the terms of the UK’s divorce from the EU.
The euro held steady at $1.1068, on course for its second weekly gain against the dollar.
· Financial markets have fully priced in a rate cut at the Fed’s Sept. 17-18 policy meeting. Most economists expect additional monetary policy easing in October and December.
The Fed cut rates in July for the first time since 2008.
Trump has publicly criticized the Fed for not cutting rates more aggressively, but positive economic data has cast some doubt on the need for extensive easing.
The BOJ is also brainstorming ways to deepen negative interest rates at minimal cost to commercial banks, as it considers adopting it as a main policy response to a slowing economy, sources familiar with the bank’s thinking said.
The BOJ’s next policy decision is due Sept. 19.
· Axel Rudolph, analyst at Commerzbank, points out that EUR/USD pair had a volatile day yesterday and revisited its early September low at 1.0926 which held and suggests that provided that this continues to be the case, they expect last week’s and yesterday’s highs at 1.108/874 to be retested and eventually overcome.
Key Quotes
“The April and May lows as well as the three month resistance line at 1.1106/10 would then be in focus. Only a daily chart close above the August 26 high at 1.1164 would confirm a bottoming formation and put the 200 day ma at 1.1260 back on the cards.”
“Support below the recent lows at 1.0927/26 comes in at the June 2016 low and the March 2017 high at 1.0912/07.”
“Failure at 1.0927/26 would negate our bullish outlook and put the January 2017 low at 1.0829 and the 78.6% Fibonacci retracement of the 2017-2018 advance at 1.0814 on the map.”
· Democratic presidential hopefuls criticized President Donald Trump’s trade war with China but gave no hint they would work toward a quick resolution if elected, pledging during their debate on Thursday to hold Beijing accountable for “corrupt” practices.
None of the top nine Democrats asked about the issue in the debate in Houston said they would move quickly to repeal the wide-ranging tariffs Trump has put in place on Chinese imports, even as they accused the Republican president of “bankrupting” the U.S. economy with damaging tariffs on farmers and businesses.
Instead, the candidates seeking their party’s nomination to take on Trump in the November 2020 election, said they would continue negotiations and make further demands on China, including its handling of protests in Hong Kong, its use of intellectual property, and labor standards.
· The most likely outcome of Brexit is that the United Kingdom will leave the European Union within weeks with no agreement in place on its future relationship, according to a new CNBC survey of chief financial officers (CFOs).
According to the latest CNBC Global CFO Council quarterly survey, published Friday, 43.5% of chief financial officers now view no deal as the most likely scenario. Almost a third (32.3%) predict a deadline extension, 8.1% expect a deal can be struck by the end of October, 3.2% foresee a second referendum while the remainder (12.9%) are not sure.
· Japan’s exports likely contracted at the fastest pace in more than three years in August, a Reuters poll showed on Friday, indicating increasing pressure on shipments as the economy is being hit by the U.S.-China trade war and slower global growth.
Adding to the challenges policymakers face, Japan’s core consumer inflation is seen in the poll as slipping to the lowest level in more than two years, largely thanks to weaker energy prices.
Exports in August are forecast to have slumped 10.9% from a year earlier, which would be the biggest shrinkage since 14.0% in July 2016 and a far sharper one than July’s 1.5% drop.
· Hong Kong leader Carrie Lam promised to prioritize housing and jobs to try to appease deep-rooted discontent about the way the Asian financial hub has been governed, as scuffles broke out between pro-Beijing and anti-government demonstrators.
· Oil futures fell on Friday as concerns about global growth and slowing demand lingered despite hints of progress on U.S.-China trade talks, setting up prices for weekly losses after days of swinging back and forth.
Brent crude was down 18 cents, or 0.3%, at $60.20 a barrel by 0442 GMT, while U.S. West Texas Intermediate (WTI) was off by 14 cents, or 0.3%, at $54.95.
Reference: Reuters, CNBC, FX Street
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