· The yen plumbed eight-month lows while China’s yuan climbed to its highest level since July on Tuesday, as the U.S. Treasury Department reversed its decision in August to designate China as a currency manipulator.
“Washington’s decision to lift its designation of currency manipulator on China has added to the positive mood that has been already in place ahead of the signing of the trade deal,” said Minori Uchida, chief currency strategist at MUFG Bank.
People familiar with the negotiations said that although the manipulator designation had no real consequences for Beijing, its removal was an important symbol of goodwill for Chinese officials.
The dollar rose as much as 0.25% to 110.22 yen, its highest since late May against the safe-haven Japanese currency. It last stood at 110.04 yen, capped at a technical resistance from Bollinger band around 110.22.
In the onshore trade, the yuan strengthened to 6.8731 per dollar, its strongest level since late July, gaining 0.4% on the day.
The offshore yuan also firmed to its strongest level in six months, hitting 6.8662 before easing slightly to 6.8725.
· The risk-on mood in financial markets mildly supported the euro against the dollar.
The European common currency, on a recovery after hitting a two-week low of $1.10855 on Friday, last traded at $1.1137 .
· Sterling came under renewed pressure after data showed Britain’s economy grew at its weakest annual pace in more than seven years in November, raising the chances of a cut to interest rates.
Sterling traded at $1.2990, having fallen to a three-week low of $1.2961 on Monday. The currency has become the worst performer so far this year with fall of 2.0% against the dollar.
Money markets forecast a almost 50% probability of a cut at an upcoming meeting on Jan. 30.
· China has pledged to buy nearly an additional $80 billion of manufactured goods from the United States over the next two years, plus over $50 billion more in energy supplies, according to a source briefed on a trade deal to be signed on Wednesday.
Aiding a sector that enjoys a rare trade surplus with China, Beijing would also boost purchases of U.S. services by about $35 billion over the same two-year period, the source told Reuters on Monday.
The Phase 1 agreement calls for Chinese purchases of U.S. agricultural goods to increase by some $32 billion over two years, or roughly $16 billion a year, the source said.
The numbers, expected to be announced on Wednesday at a White House signing ceremony between Trump and Chinese Vice Premier Liu He, represent a staggering increase over recent Chinese imports of U.S. manufactured goods.
· Amid protests fueled by popular anger over the government’s handling of a downed passenger jet, some argue this is the most vulnerable the Islamic Republic’s regime has been since its founding in 1979.
Thousands of Iranians are estimated to have protested the regime in recent days and are now being met with live ammunition and tear gas from Iranian security forces.
Iran’s economy is buckling under increasingly heavy U.S. sanctions imposed after the Trump administration withdrew from the 2015 nuclear deal.
But some former security officials worry the pressure will only make the regime double down and that those most in danger are the Iranian people.
· Swiss wealth giant UBS has predicted that the U.S. Federal Reserve could lower interest rates three times in 2020 — a forecast that differs widely from many other projections calling for no change or just one rate cut this year.
Arend Kapteyn, global head of economic research at UBS, said on Tuesday that tariffs implemented in the trade war between Washington and Beijing would drag down U.S. growth to just 0.5% year-on-year in the first half of 2020.
Still, he stressed that the impact from tariffs could just be temporary and that the U.S. is not headed into a recession.
The CME FedWatch tool places the probability of the Fed standing pat on interest rates at more than 50% through September. For the central bank’s meetings in November and December, that probability falls to 47% and and 40.5%. The tool is based on futures pricing from live markets and reflects the views of traders placing real bets on the CME exchange.
· U.S. President Donald Trump is planning his first visit to India next month, Bloomberg reported on Tuesday, citing a senior Indian government official.
The United States and India are in touch to work out mutually convenient dates for the visit, according to Bloomberg.
· China’s exports rose for the first time in five months in December and by more than expected, signaling a modest recovery in demand as Beijing and Washington agreed to defuse their prolonged trade war.
China’s December exports rose 7.6% from a year earlier, customs data showed on Tuesday. The median forecast from a Reuters poll of analysts had been for a 3.2% rise in shipments, following November’s 1.3% drop.
Imports also surpassed expectations, jumping 16.3% from a year earlier and boosted in part by higher commodity prices. The Reuters poll had forecast 9.6% growth versus 0.5% in November.
· British Prime Minister Boris Johnson on Tuesday called on U.S. President Donald Trump to replace the Iranian nuclear deal with his own new agreement.
“If we’re going to get rid of it, let’s replace it and let’s replace it with the Trump deal,” Johnson said of the 2015 nuclear arms control deal with Tehran. “That would be a great way forward.”
“I don’t want a military conflict between us, the United States and Iran, let’s dial this thing down,” Johnson said.
· Oil prices steadied on Tuesday, after recent declines, as investors focused on the signing of a preliminary trade deal between the United States and China, the world’s top oil consumers, and on expectations of a drawdown in U.S. stockpiles.
However, price gains were capped by receding Middle East tensions, with both Tehran and Washington desisting from any further escalation after this month’s clashes.
Brent crude was up 2 cents at $64.22 per barrel by 0738 GMT. U.S. West Texas Intermediate crude futures were down 4 cents at $58.04 a barrel. The benchmarks lost about 5% and 6%, respectively, last week.
· Oil prices could plummet toward $40 per barrel if the Iranian regime collapses, according to the chairman of an energy research institute.
JBC Energy’s Benigni said a change in leadership in Tehran would have a major impact on energy prices.
“For the oil market, it would mean that the likelihood of oil prices dropping towards $40 is very high,” he said on Tuesday.
“Remember Iran could easily add 1.5 million barrels within a shortest period of time. Maybe even 2 million barrels, and that’s a lot of oil,” he said.
On a larger scale, he said there isn’t much upside potential for Brent crude. “Bear in mind we have right now 6 million barrels of oil on the sidelines, 2 million of which coming from Iran.”
“If you have more pressure on Iran, you may reduce maybe 100, 200 thousand barrels going to China, but it’s not giving you much more upside potential. It’s only military confrontation that could do that,” he said.
Reference: Reuters, CNBC
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