Market Review - 13/12/2019  00:58GMT  

Dollar ends higher on US-China trade optimism

The greenback erased initial losses made in Asia and Europe and rallied against its G4 peers in New York afternoon on Thursday on reports that the U.S. has reached a deal with China, which includes delaying the tariffs that were supposed to come in place from December 15th onwards.  
Reuters reported President Donald Trump on Thursday said on the United States was "very close" to nailing down a trade deal with China, just days before new U.S. tariffs on Chinese imports were due to be imposed.   "Getting VERY close to a BIG DEAL with China," Trump said on Twitter. "They want it, and so do we."     
Trump was expected to meet with his top trade advisers on Thursday to discuss the Dec. 15 tariffs deadline, sources have told Reuters.   It reported U.S. trade negotiators have offered to cancel a new round of tariffs on imported Chinese goods set to take effect on Sunday as part of an effort to cement a phase-one deal to de-escalate the trade relationship between the two powers, the Wall Street Journal said on Thursday.     
Citing people briefed on matter, the Journal also said Trump administration negotiators have offered to cut existing tariffs by as much as half on roughly $360 billion of Chinese-made goods.  
Reuters earlier reported U.S. President Donald Trump on Thursday signed off on a trade deal with China that would delay a new round of tariffs that was to be put in place on Dec. 15, Bloomberg News reported.  A source briefed on the trade talks told Reuters earlier on Thursday that the United States had reached a "deal in principle" with Beijing to resolve a 17-month-old trade war and that an announcement was expected later on Thursday.  
Versus the Japanese yen, although dollar briefly fell to session lows at 108.46 at Asian open in reaction to Fed's dovish hold on Wednesday, price found renewed buying and rose to 108.69 in Europe on cross-selling in jpy together with recovering in U.S. Treasury yields before retreating to 108.57 at New York open. However, the pair then jumped to 109.31 on positive US-China trade news, then higher to 109.44 in New York afternoon after Trump signed off on the deal.  
The single currency went through a roller-coaster session. Price initially fell in tandem with sterling from 1.1144 in Asian morning to 1.1125 in European morning. Despite rising to a fresh 5-week high at 1.1154 at New York open after ECB kept interest rates unchanged and ECB President Christine Lagarde's mildly hawkish comments, the pair met renewed selling and dropped to session lows at 1.1104 in New York on usd's strength before staging a recovery.  
Reuters reported at today's meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively.     
The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.   On 1 November net purchases were restarted under the Governing Council's asset purchase programme (APP) at a monthly pace of 20 billion euro.     
The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.   They also intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.   
Reuters reported the European Central Bank tweaked its inflation and growth projections on Thursday, making only small changes and continuing to predict a slow but steady recovery in the coming years.  With a global trade war still weighing on confidence, Europe's vast industrial sector has struggled throughout the year. But recent data suggested that growth has bottomed out and Germany, the bloc's biggest economy, avoided a widely predicted recession.  Risks to the outlook nevertheless remain skewed to the downside, ECB President Christine Lagarde told a news conference, pointing to geopolitical uncertainty, protectionism and vulnerabilities in emerging markets as key risks.  
The British pound went through a volatile session as UK headed to the polling booths. Although cable initially rose to a fresh 8-1/2 month peak at 1.3229 in Asian morning, price retreated to 1.3207, then tumbled to 1.3151 in Europe as investors took profit ahead of UK election, the pair then ratcheted lower to 1.3117 at New York open before recovering to 1.3176 but only to fall again to session lows of 1.3051 on usd's broad-based strength.  
On the data front, Reuters reported U.S. producer prices were unexpectedly unchanged in November as increases in food and gasoline prices were offset by declining costs for services, pointing to muted inflation despite a recent uptick in consumer prices.   The Labor Department said on Thursday the flat reading in its producer price index for final demand last month followed a 0.4% surge in October. In the 12 months through November, the PPI gained 1.1%, matching October's rise, which was the smallest increase since October 2016.     
Economists polled by Reuters had forecast the PPI would rise 0.2% in November and accelerate 1.2% on a year-on-year basis.   Excluding the volatile food, energy and trade services components, producer prices were also unchanged last month after edging up 0.1% in October. The so-called core PPI increased 1.3% in the 12 months through November, the smallest gain since September 2016, after advancing 1.5% in October.   
Data to be released on Friday :  
New Zealand manufacturing PMI, Japan Tankan big manufacturing index, Tankan big manufacturing outlook, Tankan big non-manufacturing index, Tankan big non-manufacturing outlook, Tankan small manufacturing index, Tankan small manufacturing outlook, Tankan small non-manufacturing index, Tankan small non-manufacturing outlook, industrial output, capital utilization, Germany wholesale price index, Italy industrial orders, industrial sales, UK election's result, ex, Italy industrial orders, industrial sales, UK election's result, U.S. import prices, export prices, retail sales ex-autos, retail sales, business inventories.  

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