US-China trade deal edges closer, May asks for Brexit delay

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5 April 2019


Optimism that the striking of a trade deal between the US and China could be imminent helped buoy risk assets yesterday, while sending the US Dollar to a three week high against the Japanese Yen.

ews reports out of China yesterday stated that President Xi was keen for a swift conclusion to negotiations. US President Trump also suggested on Thursday that a deal could be completed within the next four weeks, although a number of key issues remain unresolved. We were one of the very few onlookers that suggested fears over the trade war could be overblown as long ago as November. This view appears to be vindicated following recent comments and was one of the main reasons why we were ranked as the number one forecaster on Bloomberg for the increasingly important USD/CNY cross in the first quarter of this year.

Macroeconomic announcements out of the US were on the light side yesterday as investors braced for this afternoon’s all-important nonfarm payrolls release. The market is pricing in a headline number around the 180k mark. A solid number around these levels, combined with further signs of an acceleration in wage growth, could send EUR/USD back below the 1.12 level this afternoon.

UK requests Brexit delay until 30th June

Sterling has continued to remain the most volatile major currency in the world this week, sliding by almost one percent versus the US Dollar on Thursday. The Pound has been little moved this morning despite the news that Theresa May had formally requested another extension to the Brexit deadline.

The Prime Minister has written to the EU to request a delay to Brexit until 30th June, with the hope of securing a deal before the European Parliament elections on 23rd May. While we have reiterated a delay to Brexit is good news for the Pound, the relatively short nature of the extension and the fact that it still requires EU approval, have ensured that the reaction in the UK currency has so far been fairly limited.

Euro edges lower on heightened growth concerns

The Euro edged back towards the 1.12 mark against the US Dollar on Thursday, with the recent barrage of underwhelming economic data out of the Eurozone continuing to raise concerns over the strength of the bloc’s economy.

Thursday afternoon’s meeting accounts from the European Central Bank also provided little assistance to the Euro. The accounts were again on the dovish side, with ‘some’ members of the committee arguing for forward guidance that stipulated holding interest rates steady through to the end of Q1 2020 versus the end of 2019 noted in the bank’s March statement. Policymakers in the bloc are clearly concerned over recent weakness in the global economy and as long as inflation remains well short of their target are highly unlikely to even consider raising rates.