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USD/JPY Hits 5-Month Highs As U.S. Confirms Tariff Rollbacks

By Kathy LienForexNov 07, 2019 04:33PM ET
www.investing.com/analysis/usdjpy-hits-5month-highs-as-us-confirms-tariff-rollbacks-200483627
USD/JPY Hits 5-Month Highs As U.S. Confirms Tariff Rollbacks
By Kathy Lien   |  Nov 07, 2019 04:33PM ET
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Kathy Lien, Managing Director Of FX Strategy For BK Asset Management

Daily FX Market Roundup November 7, 2019

The biggest driver of currency flows this week are U.S.-China trade headlines. Early on, the outlook was grim with talk of the phase-one trade deal delayed to December. However sentiment shifted dramatically overnight after China’s Ministry said they agreed to lift tariffs as the deal progresses. Both countries want a Phase-1 deal on paper by the end of the week and the U.S. confirmed that tariff rollbacks are possible. There’s opposition in the U.S. government but the mere possibility that the tariffs could be lifted sent currencies and equities sharply higher. The Dow Jones Average rose to its strongest level ever while USD/JPY hit a 5-month high. There are still some conflicting headlines including U.S. Senior Economic Advisor Larry Kudlow’s comment that there will be tough concessions if a phase-1 deal is completed. As our colleague Boris Schlossberg noted Thursday morning, the “U.S.-China trade story has had almost as many ups and downs as the Brexit battle.” But for now, the latest headlines suggest progress toward a meaningful agreement, which is enough to boost risk appetite. However the restrained rally in the Australian and New Zealand dollars also reflect the market’s cautiousness in this headline-driven environment. Barring any fresh news that could cast doubt on progress toward a deal, USD/JPY could extend its gains to 110.

Sterling, on the other hand, dropped to a 2-week low. The Bank of England voted 7-2 to leave interest rates unchanged. While we wrote about a possible division in yesterday’s BoE preview, the split caught the market by surprise. Michael Saunders and Jonathan Haskel voted in favor of an immediate 25bp rate cut. They are worried about the weakness in the labor market and the threats that global growth and Brexit uncertainty poses to the economic outlook. The central bank also lowered its 2020 and 2021 GDP forecast and its near-term inflation forecasts, which are all based on one rate cut over the next 3 years. According to Governor Carney, the global picture has darkened, Brexit uncertainty has hit UK investment and the UK-EU deal could change the investment picture. Right now, UK underlying growth has slowed below potential and there is evidence that consumers are becoming more cautious. All of this means that the risks to UK growth are skewed to the downside and if the risks materialize, the economy may need reinforcement. So despite a withdrawal agreement, sterling could suffer from the central bank’s cautiously dovish outlook. We’ve long said that a Brexit deal provides only near-term relief for the currency and the economy because it won’t be long before the true cost of Brexit is revealed.

Euro dropped to a 3-week low on the back of softer German industrial production and a weaker EU growth forecasts. The European Commission cut its GDP forecast for the region, citing global trade tensions and its view that growth is no longer expected to rebound meaningfully in the next 2 years. The Commission feels that “the surge in trade tensions and record-high uncertainty about trade policy is likely to have inflicted lasting damage to world trade.” Although the ECB’s economic bulletin was more upbeat with the central bank looking for modest but positive growth in the second half, investors kept pressure on the euro.

The Canadian dollar will be in focus Friday with labor-market numbers scheduled for release. Given the Bank of Canada’s somber mood and the sharp drop in the employment component of IVEY, we expect Friday’s report to show a meaningful slowdown in job growth. USD/CAD has yet to break 1.32 but the employment report could do the trick.

USD/JPY Hits 5-Month Highs As U.S. Confirms Tariff Rollbacks
 

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USD/JPY Hits 5-Month Highs As U.S. Confirms Tariff Rollbacks

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Comments (10)
NZbeast Hunt
NZbeast Hunt Nov 10, 2019 1:05PM ET
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Wrong
water fall
water fall Nov 08, 2019 11:25PM ET
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Trump has not agreed to anything till. CNBC 9th nov
Green ForexClub
GreenForexClub Nov 07, 2019 11:18PM ET
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Notwithstanding, investigators stay mindful fully expecting family unit spending contracting among October and December, quickly following the business charge climb. The Japanese government had expanded the business charge from 8% to 10% in October in the wake of deferring this choice twice.
Old Stone
Old Stone Nov 07, 2019 11:04PM ET
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Fake news...sorry
michele stalla
Blue Nov 07, 2019 9:28PM ET
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too much euphoria, no reason..take care
Satish Kumar
Satish Kumar Nov 07, 2019 8:27PM ET
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thank you Kathy
Thato Qhoaeli
Thato Qhoaeli Nov 07, 2019 7:50PM ET
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Is it still safe to sell
Rami Daoudi
Rami Daoudi Nov 07, 2019 7:20PM ET
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U.S hasn't confirmed anything yet.
Lex Talionis
Lex Talionis Nov 07, 2019 5:50PM ET
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Yeah, the headline is misleading. Even in the text it's said that an official confirmed the possibility of rollbacks; much weaker terms, and even that has 'fierce' opposition within the WH.
Lex Talionis
Lex Talionis Nov 07, 2019 5:50PM ET
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"Rollback of China tariffs faces fierce opposition in White House" https://news.yahoo.com/exclusive-rollback-china-tariffs-faces-202047704.html
Just Wondering
Just Wondering Nov 07, 2019 5:34PM ET
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Source?  I can find no quotes from anyone the U.S. government confirming tariff rollbacks.
 
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