Dollar ends lower as US-China sign Phase 1 agreement, sterling drops on poor UK inflation

Market Review - 16/01/2020  00:08AGMT  

Dollar ends lower as US-China sign Phase 1 agreement, sterling drops on poor UK inflation

The greenback pared intra-day gains made in Asia and Europe and ended the day lower against majority of its peers as the United States and China finally signed an agreement for Phase one of the trade deal together with falling U.S. yields.   
  
On the data front, Reuters reported U.S. producer prices edged up in December as a rise in the cost of goods was offset by weakness in services, the latest indication of tame inflation pressures that could allow the Federal Reserve to keep interest rate unchanged this year.   The Labor Department said on Wednesday its producer price index for final demand ticked up 0.1% last month after being unchanged in November. In the 12 months through December, the PPI increased 1.3% after gaining 1.1% in November.    Economists polled by Reuters had forecast the PPI climbing 0.2% in December and advancing 1.3% on a year-on-year basis.  
  
Versus the Japanese yen, although dollar dropped to 109.82 ahead of Asian open on overnight CNBC news report, which said U.S. would keep tariffs on China through the 2020 elections, price pared its losses and rebounded to 109.96 in Asian morning. However, renewed selling there pressured the pair down to session lows at 109.79 in New York morning before recovering to 110.00 on comments from White House Adviser Kudlow and then swung broadly sideways.  
  
Reuters reported U.S. tariffs will remain on Chinese imports while the Trump administration sees how enforcement plays out under the Phase 1 trade deal with Beijing, White House economic adviser Larry Kudlow said on Wednesday.    Kudlow, speaking in an interview on CNBC ahead of the White House signing of the trade agreement, said the United States would take additional proportional actions if enforcement of claims fails under the Phase 1 pact.  
  
The single currency traded with a firm bias in Asia and gained to 1.1136 ahead of European open before dropping to session lows at 1.1119 in European morning. However, the pair erased its losses and rallied to an intra-day high at 1.1163 in New York morning on improved risk sentiment together with cross-buying of euro especially vs sterling before easing.  
  
Reuters reported the German economy grew by 0.6% in 2019, the weakest expansion rate since 2013 and a marked cooling from the previous year, a preliminary estimate from the Federal Statistics Office showed on Wednesday.    Economists polled by Reuters had expected growth in gross domestic product (GDP) of 0.6% last year after an expansion rate of 1.5% in 2018.   
  
The British pound went through a roller-coaster ride yesterday as despite rising to at 1.3042 ahead of European open, price tumbled to an intra-day low at 1.2985 in European morning as the release of poor UK inflation data bolstered the case of a rate cut from the Bank of England. However, cable pared its losses and staged a short-covering rebound to 1.3040 (Reuters) in New York before stabilising.  
  
Reuters reported British inflation sank unexpectedly to a more than three-year low in December as hotels slashed prices, according to figures that are likely to fuel expectations that the Bank of England will cut interest rates.    Consumer prices rose at an annual rate of 1.3% compared with 1.5% in November, marking the smallest increase since November 2016, the Office for National Statistics said.   That was below all forecasts in a Reuters poll of economists that had pointed to another 1.5% increase.    A measure of core inflation, which excludes energy, fuel, alcohol and tobacco, also fell to its lowest since November 2016 at 1.4%, down from 1.7% in November.  
  
In other news, Reuters reported Bank of England interest-rate setter Michael Saunders said on Wednesday he was sticking to his view that borrowing costs should be cut because of weakness in Britain's labour market and its broader economy.    Saunders was one of two of the nine members of the BoE's Monetary Policy Committee who voted to cut interest rates in late 2019.    Since then, other MPC members have said a rate cut might be necessary, including BoE Governor Mark Carney.    Saunders said some recent business surveys suggested Britain's economy had improved while others had worsened than remained sluggish.  
  
Data to be released on Thursday:  
  
New Zealand retail sales, Japan corp goods price, machinery orders, UK RICS housing price balance, China house price index, Germany CPI, HICP and U.S. import prices, export prices, initial jobless claims, Philly Fed manufacturing survey, retail sales ex-autos, retail sales, business inventories, NAHB housing market index.