May survives vote but sets departure
December 13th: Highlights
- Prime Minister will leave before next election
- ECB to end Asset Purchase Scheme
- Dollar rises as trade war fears diminish
ECB to end one stimulus, defer changes to another
Such support has run its course in global terms but the ongoing concerns over the strength, or otherwise, of certain Eurozone banks, particularly those in Italy, have raised worries over the timing of the withdrawal.
The wider market will now be looking for any indication from ECB President Mario Draghi about when interest rates will be raised as inflation starts to tick up and savers in the region continue to suffer.
They are going to be disappointed as the ECB will certainly want to study the effect of the withdrawal of one stimulus before deciding on another. There is now a reasonable chance that rates won’t be hiked at all in 2019 meaning that Draghi won’t preside over a rate hike during his entire term on office. While this in itself will be little more than an interesting fact it does point to the difficulties he has faced during his tenure which will be best judged by future generations of economics students.
The single currency remains in the doldrums with little positive news either economically or socially to provide any optimism. It rallied yesterday reaching 1.1387 and closed at 1.1371. There won’t be any significant news from the ECB today to push it out of its recent range and it will probably now return to reactive status ahead of next week’s FOMC Meeting.
Focus for the dollar on improving trade relations with China
It is, however, the release of the Fed’s economic projections and Powell’s Monetary Policy Statement that will be most eagerly anticipated. Despite the initial excitement over last week’s employment report now having dissipated, the ongoing concerns underlying the headline numbers raises concerns over the level of job creation going forward.
The two significant pieces of data, the headline increase in NFP, and wage inflation appear to have decoupled although it is hard to decipher without a few more months data. That is why there is such importance being attached to the economic projections which will give a greater indication of the Fed’s rate intentions.
The dollar has reacted positively to what appears to be a thaw in the frosty trade relationship between the U.S. and China. China made its first purchase of soya beans from the U.S. yesterday since the truce arranged between Presidents Trump and Xi was announced following the Buenos Aires G20 meeting.
Following recent positivity, the dollar index took a breather yesterday, falling to a low of 96.89 before recovering to close at 97.05.
Dollar closing the year on a high
However, one of the primary reasons for the rally was in reaction to the continued woes being faced by the U.S.’s trading partners across the Atlantic. As the pound and euro, which make up around 70% of the index suffer the dollar has taken up the slack.
One further cause for optimism around the dollar is the progress being made in high-level trade talks between the U.S. and China. Despite the comments from President Trump that he may trade the freedom of the Huawei CFO, currently under arrest in Canada, for trade concessions which will have inflamed Beijing, a cut in the tariff attached to import of U.S cars and trucks into China is an encouraging sign.
As is normal, the effect of last week’s weaker than expected employment report has worn off and the focus is now switching to the FOMC meeting before the market closes to all intents and purposes for the holiday season.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”