Market Review - 07/11/2019 23:45GMT
Dollar gains on continued U.S.-China trade optimism and rising U.S. Treasury yields
The greenback erased initial losses made in Asia and Europe and gained against its G4 peers on Thursday on renewed U.S.-China trade optimism that both countries will cancel some existing tariffs if phase one trade deal is reached as well as rally in U.S. Treasury yields, where the benchmark 10-year hit 2-year high at 1.929%. Sterling fell across the board on Bank of England's dovish hold.
Reuters reported China and the United States must simultaneously cancel some existing tariffs on each other's goods for both sides to reach a "phase one" trade deal, the Chinese commerce ministry said on Thursday. The proportion of tariffs cancelled must be the same, and how much tariffs should be cancelled can be negotiated, said Gao Feng, spokesman at the commerce ministry. Both sides have agreed in the past two weeks to cancel the additional tariffs imposed during their months-long trade war in different phases, Gao said.
Versus the Japanese yen, dollar went through a roller-coaster ride. Although dollar fell from 109.01 in Australia to session lows at 108.66 in Asian morning, price found renewed buying and jumped to 109.12 in European morning on positive U.S.-China trade news before retreating to 108.94. The pair then rose to a 5-month high at 109.48 in New York afternoon on rally in U.S. Treasury yields before stabilising.
Although the single currency remained under pressure in Asia and dropped to 1.1055, renewed buying emerged and lifted price to session highs at 1.1091 in Europe on active buying in eur/jpy cross before falling to a fresh 3-week low at 1.1037 in New York due to usd's strength.
The British pound went through a volatile session. Although cable dipped to 1.2837 in Asia, price gained in tandem with euro to session highs at 1.2878 in Europe. However, the pair met renewed selling and price spiked down to 1.2805 at New York open after Bank of England kept interest rate unchanged but two BOE officials unexpectedly voted for rate cut. The pair then ratcheted lower to a 13-day bottom at 1.2794 before recovering to 1.2832 and then swung broadly sideways.
Reuters reported two Bank of England officials unexpectedly voted to lower interest rates this month due to signs of a deeper economic slowdown, and others said they would consider a cut if global and Brexit headwinds did not lift. The BoE said on Thursday that its nine-member Monetary Policy Committee voted 7-2 to keep Bank Rate at 0.75%, in sharp contrast to forecasts in a Reuters poll for a unanimous decision. Two external members of the MPC, Michael Saunders and Jonathan Haskel, became the first to vote for lower interest rates since the BoE last cut rates in August 2016 following Britain's referendum decision to leave the European Union.
In other news, Reuters reported the euro zone economy will continue to grow in the second half of the year, even if only modestly, boosted by private consumption and a small growth in employment, the European Central Bank said in an Economic Bulletin on Thursday. "Incoming data and survey results point to moderate but positive economic growth in the second half of 2019," the ECB said in the bulletin, which is largely consistent with its October policy statement. "This growth pattern can be primarily attributed to weak global trade and prolonged uncertainties."
With growth slowing, the ECB approved a stimulus package in September, cutting rates deeper into negative territory, promising low rates for even longer and starting indefinite asset buys to lower long-term borrowing costs. "Risks to the global economy remain to the downside amid a further escalation of trade disputes, high uncertainty related to Brexit and a potentially slower recovery in a number of emerging market economies," the ECB added.
On the data front, Reuters reported the number of Americans filing applications for unemployment benefits fell more than expected last week, consistent with strong labor market conditions and continued job growth. Initial claims for state unemployment benefits decreased 8,000 to a seasonally adjusted 211,000 for the week ended Nov. 2, the Labor Department said on Thursday. Data for the prior week was revised to show 1,000 more applications received than previously reported. Economists polled by Reuters had forecast claims would fall to 215,000 in the latest week. The Labor Department said claims for one state, Kentucky, were estimated last week.
Data to be released on Friday :
Japan all household spending, coincident index, leading indicator, Australia housing finance, China exports, imports, trade balance, Swiss unemployment rate, Germany exports, imports, trade balance, current account, France current account, industrial output, non-farm payrolls, trade balance, imports, exports, Canada housing starts, building permits, employment change, unemployment rate, and U.S. University of Michigan sentiment, wholesale inventories, wholesale sales.
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