President Trump stated that negotiations on the second phase would start as soon as the first phase kicks in.
Risk appetite held firm on Wednesday as positive trade rhetoric after the phase-one US-China trade deal signing helped underpin sentiment.
There was some positive US-china rhetoric ahead of the official signing with Treasury Secretary Mnuchin stating that there will be additional tariff rollbacks in the second phase of trade negotiations. Chinese Vice-Premier Liu also commented that the two sides will work together after the signing. The dollar was unable to make headway and USD/JPY remained just below 110.00 as the US currency overall drifted lower, especially as Treasuries made tentative gains.
President Trump stated that negotiations on the second phase would start as soon as the first phase kicks in and he will agree to the removal of all tariffs if the second phase is completed. The rhetoric helped underpin global risk appetite.
Global equities posted fresh record highs, although with a limited correction in Asia on Thursday amid doubts over deal implementation.
The dollar drifted lower during the day amid a net shift into other major assets and expectations of accommodative Fed policy with EUR/USD edging higher.
Commodity currencies secured only limited gains given that existing US-China tariffs will stay in place for now. Oil prices were hurt by another large build in product inventories, but trade hopes triggered a recovery. Precious metals secured only limited gains as global risk sentiment remained firm.
The Federal Reserve’s Beige Book reported that economic activity continued to expand modestly, although manufacturing was essentially flat in most districts. There was little change in inflation, although some districts reported a slightly faster pace of price increases. Reaction was muted with EUR/USD drifting close to 1.1150 on Thursday amid a soft dollar.
Bank of England Monetary Policy Committee member Saunders stated that it will probably be appropriate to maintain an expansionary monetary policy and possibly cut interest rates further. Risk management considerations also favoured a relatively prompt and aggressive response to downside risks and a rate cut now would not be described as precautionary.
UK consumer prices were unchanged for December with the year-on-year rate declining to a 3-year low of 1.3% from 1.5% compared with market expectations of an unchanged rate of 1.5%. The core inflation rate also declined to 1.4% from 1.7% and below consensus forecasts of 1.7%. The lower than expected inflation data reinforced expectations that the Bank of England would cut interest rates to help support the economy and Sterling dipped lower once again.
GBP/USD did find support below 1.3000 and recovered ground to around 1.3040 as the dollar lost traction and global trade hopes also provided significant protection. Sterling held steady on Thursday with GBP/EUR around 1.1700.
Economic Calendar
| Expected | Previous | ||
|---|---|---|---|
| 07:00 | Germany CPI (M/M)(DEC, 2019) | 0.50% | 0.50% |
| 07:00 | Germany CPI (Y/Y)(DEC, 2019) | 1.50% | 1.50% |
| 07:00 | Germany Harmonised CPI (M/M)(DEC, 2019) | 0.60% | 0.60% |
| 07:00 | Germany Harmonised CPI (Y/Y)(DEC, 2019) | 1.50% | 1.50% |
| 13:30 | USD Core Retail Sales (M/M)(DEC, 2019) | 0.40% | 0.10% |
| 13:30 | USD Export Price Index (M/M)(DEC, 2019) | 0.1 | 0.2 |
| 13:30 | USD Import Price Index (M/M)(DEC, 2019) | 0.30% | 0.20% |
| 13:30 | USD Philadelphia Fed. Manufacturing Index(JAN) | 3.8 | 0.3 |
| 13:30 | USD Advance Retail Sales (M/M)(DEC, 2019) | 0.40% | 0.20% |
| 15:00 | USD Business Inventories(NOV, 2019) | -0.10% | 0.20% |
| 15:00 | NAHB Housing Market Index(JAN) | 76 | 76 |
| 21:00 | USD TIC Net Long-Term(NOV, 2019) | - | 32.5B |
| 21:30 | NZD Business NZ PMI(DEC, 2019) | - | 51.4 |