· The dollar traded near its highest in more than two months versus the yen on Monday ahead of a U.S. Federal Reserve meeting this week where policymakers are expected to cut interest rates but emphasize their reluctance to ease policy further.
Sterling edged lower versus the dollar and the euro, with an agreement expected later on Monday to delay Britain’s divorce from the European Union to Jan. 31 after Prime Minister Boris Johnson failed to win approval for his Brexit timetable.
The market focus will shift to the Fed meeting ending Oct. 30 and a Bank of Japan meeting ending Oct. 31. The Fed is expected to cut interest rates for a third time this year, but fixed income analysts say this is largely priced into the market.
· The BOJ is leaning toward keeping policy on hold next week, but the decision is a close call as policymakers struggle with threats to the global outlook from the U.S.-China trade war and Brexit.
The greenback was quoted at $1.1084 per euro, close to its strongest in more than a week.
The dollar index against a basket of six major currencies rose slightly to 97.882, also near its highest in more than a week.
In the onshore market, the yuan briefly strengthened to 7.0523 per dollar, the strongest since Oct. 14. In the offshore market, the yuan edged to 7.0450 per dollar on Monday, the strongest since Sept. 13.
· The Fed meeting this week is widely expected to result in a cut in interest rates of 25 basis points, and that has been priced in, but some analysts expect the Fed to sound “hawkish” by signalling it is reluctant to cut rates further.
The pound fell 0.17% to $1.2815 and eased 0.13% to 86.48 pence per euro.
The EU bloc’s 27 ambassadors will meet at 0900 GMT on Monday in Brussels to agree on a three-month delay from the current Brexit date of Oct. 31, diplomatic sources told Reuters.
· US Economic Calendar Heavy Over the Coming Days
With the US-China trade war on the path to de-escalation and a Brexit extension looking likely, the US economic calendar will compete with evolving overarching macroeconomic themes for influence over the US Dollar. As October ends and the calendar opens for November, there are several economic data releases that are classified as ‘high’ event risk that will drive volatility across USD-pairs.
Ahead of the two major releases this week on the forex economic calendar – the October Fed meeting and the September US jobs report (nonfarm payrolls), it’s important to calibrate expectations around the current US growth picture. Overall, the US economy has been disappointing market participants, with the Citi Economic Surprise Index for the US eroding from 44.3 to 4.9 over the past four weeks.
Rate Cut Due at October Fed Meeting
The Federal Reserve has been front-and-center in terms of rate cut expectations driving market sentiment, largely due to the US-China trade war. But now that negotiations are moving in the right direction again, expectations for heavy-handed monetary stimulus have been reduced. Instead of three 25-bps rate cuts being discounted over the next year, there are now only two, and they are front-loaded.
According to overnight index swaps, market participants are currently discounting a 90% chance of no policy change at the October Fed meeting, up from 88% this time last week. Rate cut odds have risen meaningfully in recent months, having sat at 52% one-month ago. Additionally, there is now a 51% chance of a 25-bps rate cut at the January 2020 Fed meeting. After that, however, market participants only foresee a 35% chance of an additional policy move thereafter.
· The U.S. and China need a more comprehensive trade agreement before market sentiment can be boosted sustainably, analysts said on Monday.
“In order to have, I think, a meaningful impact as far as shifting the needle on global growth sentiment and away from the U.S. still being the primary driver of global growth, you would have to see an agreement that includes — if not an actual winding back of tariffs — but at least a clear pathway to the winding back,” said Ray Attrill, head of FX strategy at National Australia Bank.
What’s more important to the markets is when the tariffs could be lifted and when issues of technology and intellectual property are going to be resolved, said Ken Wong, Asia equity portfolio specialist at Eastspring Investments.
The analysts were not hopeful that the two sides can reach consensus on more issues by the end of the year.
“If we can get much more agreements between the two sides by the end of this year, I think this is going to surprise the markets,” said Wong.
· European ambassadors are due to meet Monday morning to discuss once again the U.K.’s request to have more time to prepare its departure.
A draft document prepared ahead of that meeting, signed on October 27, shows that the EU is set to grant a third Brexit delay, “which ends at the latest on 31 January 2020.”
Nonetheless, the European Union is set to exclude any future renegotiation on the U.K.’s departure.
· Recent weeks have seen mass protests and clashes erupt in far-flung places triggered by seemingly minor actions that each came to be seen as the final straw. The demonstrations are fueled by local grievances, but reflect worldwide frustration at growing inequality, corrupt elites and broken promises.
In Hong Kong, it was a complicated extradition dispute involving a murder suspect.
In Beirut, it was a proposed tax on the popular WhatsApp messenger service.
In Chile, it was a 4-cent hike in subway fares.
For years, Catalan separatists have held peaceful, festive marches, but the movement took a violent turn last week when protests erupted over the imprisonment of nine leaders who led a bid for independence from Spain in 2017.
· Hong Kong has fallen into recession, hit by more than five months of anti-government protests that show no signs of relenting, and is unlikely to achieve annual economic growth this year, the city’s Financial Secretary said.
“The blow to our economy is comprehensive,” Paul Chan said in a blog post on Sunday, adding that a preliminary estimate for third-quarter GDP on Thursday would show two successive quarters of contraction - the technical definition of a recession.
· Iran would need oil priced at $194.6 a barrel to balance its budget next year, the International Monetary Fund (IMF) said.
Hurt by tighter U.S. sanctions, Iran - a key member of the Organization of the Petroleum Exporting Countries (OPEC) - is expected to have a fiscal deficit of 4.5% this year and 5.1% next year, the fund said in a report on Monday.
· President Donald Trump on Sunday said he’s interested in making a deal with ExxonMobil or another energy company to tap Syrian oil reserves.
“What I intend to do, perhaps, is make a deal with an ExxonMobil or one of our great companies to go in there and do it properly...and spread out the wealth,” he said.
Oil prices fell on Monday after strong gains last week, as data released in China reinforced signs that its economy is slowing, though progress in China-U.S. trade talks has supported prices.
Brent crude was down 34 cents, or 0.4%, at $61.79 a barrel by 0531 GMT, having gained more than 4% last week, its best weekly gain since Sept. 20.
West Texas Intermediate (WTI) crude futures were down 27 cents, 0.5%, at $56.39 a barrel, after rising more than 5% last week, also the biggest weekly increase since Sept. 20.
Reference: Reuters, CNBC, FX Street
Thai
Eng