The US Fed Beige Book was released yesterday and the report noted the economy expanded at a “modest pace” through the end of August. Concerns regarding tariffs and trade policy uncertainty continued to weigh on the economy but businesses remain “optimistic” about the near-term outlook. New York Fed President Williams spoke yesterday and said “the economy is in a good place, but not without risk and uncertainty”. “Persistently low inflation” is a key area of his attention.” Comments by Fed Presidents are being carefully watched with the Federal Open Market Committee meeting scheduled for September 17-18.
EUR moved higher as repatriation flows continued, but these flows are ending and the negative view on the EUR is likely to return. Positive US data versus negative EUR date is going to weigh on the EUR. German yields continue to fall and markets seem sure of the expected European Central Bank rate drop at their meeting later this month.
GBP has rallied after the British Parliament rejected Prime Minister Johnson’s bill for early elections. Opposition leaders are looking to block a no-deal Brexit, and the legislation has passed in the House of Commons on the way to the House of Lords. If passed there, the bill will become law by Royal Assent on Monday.
Positive trade-related news has weighted on the JPY’s safe haven status as traders take these positions off the books. A decent US bond rally also saw traders reduce their positions. Markets now focus on US Friday Non-Farm Payroll release.
The Bank of Canada left rates unchanged at 1.75% yesterday, which was expected, but the accompanying statement surprised traders as it was less dovish than expected. With crude oil prices stronger overnight the “Loonie” has seen a good buying surge. According to the Monetary Policy Report, Canada growth in the second quarter was strong and exceeded July’s expectation.
The US and China have agreed to continue trade negotiations in October. According to the Chinese Ministry of Commerce, “both sides agreed that they should work together and take practical actions to create good conditions for consultations”. Continued conversations during this month between US and Chinese trade representatives will set the stage for high level negotiations in early October. These meetings will apparently take place in Washington D.C.