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Dollar falls as hopes rise of US/China trade deal

By Jake Trask

Sterling’s rally seen on Wednesday and Thursday has carried on overnight with GBP/USD pushing above 1.30 for the first time since 23rd October. Cable has risen over three cents in three days as a sharp improvement in sentiment re: a Brexit deal has boosted the pounds fortunes. Yesterdays Bank of England November interest rate decision and Inflation Report added some support too with BoE Governor, Mark Carney stating that should we see a Brexit deal soon then the expected pace of interest rate hikes from the bank could quicken. With politics dominating sterling’s movements of late the Inflation Report was expected to be a bit of a non-event however the hawkish tone from Carney was enough to make headlines and move pounds crosses higher. Data-wise yesterday saw the worst UK Manufacturing PMI in over two years with the report citing that factory output could contract in the fourth quarter however the pound barely batted an eyelid. This morning we have Octobers Construction PMI with a slight moderation to 52 expected in the reading. GBP/USD hovers around 1.3030.

The dollar has dropped across the board and stock markets have risen as news over a possible trade deal between the US and China boosted risk appetite globally. News reports that an improvement in dialogue between Washington and Beijing and a possible one on one meeting between US President, Donald Trump and China President, Xi Jinping at this month’s G20 meeting has seen Asian markets soar. All major bourses in the region closed higher with Tokyos Nikkei 225 up 2.6%, Shanghai’s Composite up 2.7% and Hong Kongs Hang Seng higher to the tune of 4.2%. The upwards moves in stocks and downward moves from the greenback were given further impetus by Trump tweeting: Just had a long and very good conversation with President Xi Jinping of China. We talked about many subjects, with a heavy emphasis on Trade. Those discussions are moving along nicely with meetings being scheduled at the G-20 in Argentina. Also had good discussion on North Korea! EUR/USD has pushed back above 1.14 on the news with USD/JPY climbing to above 113. Today’s big data event is the monthly US Jobs Report with the headline Non-Farm Payrolls number predicted to be 194k and monthly wages expected to rise 0.2%.

As mentioned earlier the euro has benefited from the global dollar sell off witnessed overnight as the shared currency recoups some of its recent losses. The ongoing impasse re: the Italian budget continues to weigh heavy on the euro but should some sort of agreement be found in the next couple of weeks that markets approve of then further gains will be likely as we approach Christmas. There is no data from the EZ today so ongoing news over trade will likely be the main mover. GBP/EUR trades close to 1.14.

AUD/USD has moved back above 0.71 and through 0.72 on the positive news re: trade. Despite a slightly under-par monthly Retail Sales number seen overnight from Oz the Aussie has rallied along with most other commodity currencies. GBP/AUD trades around 1.80.

USD/CAD has dropped around one cent over the past 24 hours despite the cost of Brent Crude dropping to its lowest level in around two months ($72.7pb). USD/CAD currently trades at 1.3060 ahead of a potentially volatile afternoon for the cross. At the same time as the US jobs report we have Canadian employment and trade balance figures published so expect some sharp moves at 1:30pm. GBP/CAD sits at 1.70.

NZD/USD hit a peak of .6685 first thing this morning falling short of the .67 last seen at the end of August. Tuesday night sees employment numbers from NZ published so until then, much like the Aussie and the loonie expect global sentiment re: trade to be the main movers of the kiwi. GBP/NZD trades at 1.9540.