· The dollar nursed losses against most major currencies on Friday, as central banks in Switzerland and the UK refrained from following the Federal Reserve in cutting rates, while risk appetite ebbed on caution about U.S-China trade talks.
Sterling hit a two-month high of $1.2560 against the greenback overnight after European Commission President Jean-Claude Juncker said he thought Brussels could reach a deal with Britain to leave the European Union.
The Swiss National Bank, the Bank of England and the Bank of Japan all kept their policies on hold on Thursday. Their currencies rose and mostly held gains in Asian trade.
· The exception was the Antipodes, where the Australian and New Zealand dollars languished around two-week lows after a slew of soft data capped by an uptick in Australian unemployment that prompted a rush to price in fresh rate cuts for October.
Economists at Citi on Friday joined Australia’s major banks in predicting an October rate cut.
The dollar was steady buying 108.00 Japanese yen, after falling from close to a seven-week peak hit on Thursday.
It was slightly weaker against the Swiss franc at 0.9921 per dollar and the euro at $1.1050 and flat against a basket of currencies at 98.334.
· Investors are also focused on U.S.-China trade talks in Washington, aimed at laying the groundwork for high-level discussions next month.
However, most traders are cautious. Few signs of progress have emerged and with a wide gulf between both sides remaining, it is weighing on the recent risk-on mood.
The Chinese yuan steadied to just under a one-week low at 7.0990 per dollar in offshore trade, with investors eyeing a possible benchmark lending rate reduction later in the day.
China’s central bank is trying to guide borrowing costs lower to help an economy suffering from the trade war.
· The optimism around the single currency stays well and sound at the end of the week, with EUR/USD navigating in the 1.1050/60 band ahead of the opening bell in Euroland.
The pair is advancing for the second session in a row on Friday as market participants continue to digest the recent FOMC event and refocus the attention on the US-China trade front.
EUR/USD levels to watch
At the moment, the pair is gaining 0.14% at 1.1056 and faces the initial hurdle at 1.1109 (monthly high Sep.13) seconded by 1.1163 (high Aug.26) and finally 1.1175 (100-day SMA). On the flip side, a break below 1.0990 (low Sep.16) would target 1.0925 (2019 low Sep.3) en route to 1.0839 (monthly low May 11 2017).
· The U.S. is temporarily exempting more than 400 types of Chinese products from tariffs that President Donald Trump’s administration imposed last year, CNBC has confirmed.
That’s according to three documents set to be published on Friday by the Office of the U.S. Trade Representative. The news was first reported by Politico.
The exclusions include things like Christmas tree lights, plastic straws, dog leashes and printed circuit boards, for a total of 437 types of products. They are part of the $250 billion worth of Chinese goods that the U.S. hit with tariffs last year. It was not immediately clear how large a portion of the overall tariffs is covered by the exclusions.
The exemptions stem from more than 1,100 exclusion requests made by companies and other entities in the United States, according to the documents.
· Incoming European Central Bank President Christine Lagarde said that global growth is ‘fragile’ and ‘under threat’, the AFP news agency reported on Friday.
The former International Monetary Fund chief, who is due to take over from ECB President Mario Draghi on Nov. 1, said central bankers must be ‘predictable’ and focus on stability, according to the AFP.
· Tensions between the U.S. and China might well drag on over the next decade, so investors have to learn to operate under such prolonged uncertainty, said the co-chief executive of private equity giant Warburg Pincus.
Accommodating that new reality doesn’t mean having to accept smaller investment returns, said Kaye.
He added that China, despite being in the center of the trade war, could still offer investors good returns in the coming years. That’s because global growth will increasingly be driven by consumption in Asia, and China is “an important part” of that trend, he explained.
· The U.S. economy doesn’t need any rate cuts, billionaire investor and Oaktree Capital’s co-chairman Howard Marks told CNBC, predicting there won’t be a recession for another two years.
“If your goal is to make sure we don’t have a recession this year, next year ... (then) maybe you want to cut rates,” Marks told CNBC’s Tanvir Gill on Thursday.
But the U.S. economy is doing “pretty well,” Marks said, with sources of strength which could be mostly attributed to the American consumer.
When asked if a recession was about to his the U.S., he replied: “It doesn’t feel to me like a recession is imminent. I don’t think we’re going to go 5 years without it, so some time two years from now — something like that.”
· The People’s Bank of China (PBOC) slashed it monthly one-year lending rate (LPR) to 4.20% vs. 4.25% previous.
Meanwhile, the Chinese central bank set the 5-year LPR unchanged at 4.85%.
Analysts expect a further gradual reduction in Chinese interest rates in coming months as part of the government’s attempt to support economic growth without rekindling financial risks from excessive debt accumulation.
· The British government said on Friday it wanted to hear from businesses and members of the public what their priorities were for a post-Brexit trade deal with Japan.
Britain’s decision to leave the European Union has raised concern that Japanese firms will shift operations elsewhere if tariff-free trade ends with the rest of the European bloc.
The government said its “call for input” to help it prepare for post-Brexit trade negotiations with Japan, would be open until Nov. 4, with anyone able to take part online.
· National Australia Bank economists on Friday became the latest to join a growing pool of analysts predicting a third interest rate cut by the country’s central bank in October, citing slowing economic growth and a smaller chance of fiscal support.
Financial futures <0#YIB:> are now pricing an 80% chance of cut by the Reserve Bank of Australia (RBA) in October to a record low 0.75%, up from a 50-50 probability before data out on Thursday showed the country’s unemployment rate had increased to a one-year high of 5.3% in August.
· Oil prices rose slightly on Thursday, supported by supply risks brought about by last weekend’s drone attacks on Saudi oil infrastructure and a cut in U.S. interest rates.
Brent crude futures gained 72 cents to $64.33 a barrel, while U.S. West Texas Intermediate crude settled up 2 cents at $58.13 a barrel.
The attacks knocked down more than half of Saudi Arabia’s crude production and severely limited the country’s spare capacity, a cushion for oil markets in any unplanned outage.
· “Global available spare capacity is extremely low at present following the weekend attacks, leaving little room for additional outages, which tends to be price supportive,” UBS oil analyst Giovanni Staunovo said.
· Iran says its foreign minister will attend next week’s United Nations General Assembly meeting in New York, amid doubts about whether the U.S. would give him a visa.
The semi-official ISNA news agency says Mohammad Javad Zarif will travel on Friday. As host country of the U.N., the U.S. is required to issue the visas.
· Any U.S. or Saudi military strike against Iran would bring “all-out war”, Tehran said on Thursday, keeping up a drumbeat of warnings to its adversaries after they accused the Islamic Republic of a strike on Saudi oil facilities.
The United States has been discussing with Saudi Arabia and other Gulf allies possible responses to Saturday’s attack, which they blame on Iran and which U.S. Secretary of State Mike Pompeo described as an act of war on the kingdom.
Reference: Reuters, CNBC, FX Street
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