Phase one of the US-China trade talks have finally ended and the formal announcement is due today. News sources are reporting that President Trump has already signed off on the agreement. The agreement states that China would purchase as much as $50B in US farm products in 2020. This would double the amount of purchases that were made in 2017, before the trade war began. The agreement also states that existing tariffs on both sides would be cut by 50% and no new tariffs would be implemented. As news of the expected trade deal reached the equity markets, the DOW moved higher up 220 points. The USD remained under pressure against the GBP and EUR as a result of the UK elections.
EUR/USD is trading higher as well, off the back of the positive movement of the GBP. According to the monthly economic assessment from the German Bundesbank, German growth and inflation forecasts have been lowered for 2020. According to the bank, German GDP for 2019 will be at +0.5% which is lower than the June forecast of +0.6%. GDP for 2020 was also lowered to 0.6% from the June forecast of 1.2%, and GDP for 2021 was set at 1.4%, versus 1.3% in June. Despite this news, the EUR reached four-month highs.
Prime Minister Boris Johnson’s Conservative Party won a resounding victory, with the biggest election win since 1987. As the outcome was confirmed, GBP/USD reached highs not seen since May 2018. The Conservative Party secured 364 seats in Parliament, which may be more than enough to get the Brexit deal approved. It should be noted that the election also saw the Scottish National Party secure a large number of seats, which could lead to a referendum on independence. Prime Minister Johnson said that Brexit is now “irrefutable” and should get done. Expectations are to get approval of the Brexit deal before Christmas and leave the EU on January 31.
While the USD felt pressure against the GBP and EUR, it moved higher against the JPY, as optimism over the US-China trade deal has seen traders move away from “safe haven” JPY trades. USD/JPY has touched two-week highs based on this trading. Investors may be finding an appetite for risk trades by leaving the JPY and moving on to other trades.
The Canadian Dollar continues to remain strong overnight buoyed by higher oil prices, and the USD being pressured by GBP and EUR buying. The Canadian Dollar is at its strongest point since November 6th. Expect the Canadian Dollar to follow the other currencies for the next few trading sessions.
The Chinese delegation has been quiet, as the US side boasts of an agreement. The only comment that has been heard was from the Chinese Foreign Ministry which stated that “China is committed to resolving trade issues, but any deal with the US must be mutually beneficial”. This may create some concern that China may not be ready to sign off on this deal.