Foreign Exchange Market Update
December 13, 2018
United States (US): Jobless Claims, Import/Export Price
US jobless claim tumbled 27,000 to near 49-year low of 206,000 for the week ended December 8, better than expected of claims falling to 225,000. Continuing claims increased 25,000 to 1.67 million for week ended December 1. Import prices fell 1.6% MoM in November, the biggest decline since August 2015 as cost of petroleum tumbled and strong dollar weighed on prices of other goods, much higher than estimate of 0.9% decrease. Import prices rose 0.7% YoY, the smallest annual increase in 2 years and followed a 3.3% rise in October. Export prices fell 0.9% MoM in November after 0.5% rise in October. On annual basis, export prices increased 1.8% in November compare to 3.1% in October.
European Union (EU): ECB Interest Rate Decision
Euro traded at 1.1363 against USD at 2:00 pm PST.
ECB left interest rate unchanged as expected. The ECB's governing council confirmed that they will stop expanding QE from the end of December when bond purchases will fall from 15 billion euros a month to zero. it plans to reinvest cash from maturing bonds for an extended period of time beyond its next interest rate hike. The ECB's QE bought more than EUR 2.6 trillion, which was introduced in March 2015 in a bid to rescue the euro zone economy from deflationary forces and rebuild confidence.
Germany consumer prices rose 2.3% YoY in November and 0.1% MoM higher from October. The inflation rate continued to be significantly influenced by the price increase for energy products. Energy prices in were 9.3% higher than a year ago. Food prices increased by 1.4% YoY, slower than 1.9% YoY in October.
United Kingdom (UK): EU Brexit Summit
British Pound traded at 1.2654 against USD at 2:00 pm PST.
UK PM May pressed European leaders for further concessions in the Brexit deal, pleading them to help her bolster slipping support in Britain for the compromise agreement. However, the European leaders said they were willing to give ground on everything except exactly what May was seeking: reassurances with legal weight, that Britain would not be locked permanently into a sort of junior-class EU membership, subject to many of its rules but unable to sway its decision-making. May said, “my focus now is on ensuring that I can get those assurances that we need to get this deal over the line, because I genuinely believe it’s in the best interest of both sides, the UK and the EU, to get a deal over the line, to agree to a deal.” May confirmed that the controversy had cost her own political future. She promised yesterday that she would step down ahead of the next British elections in 2022, in exchange for support in a confidence vote. “In my heart, I would love to be able to lead the Conservative Party into the next general election, but I think that it is right that the party feels that it would prefer to go into that with a new leader,” May said in Brussels.
China: First Big US Soybean Purchase
Onshore Chinese yuan traded at 6.8798 per USD at 2:00 pm PST and offshore Chinese yuan traded at 6.8765 per USD.
US Department of Agriculture announced private sales of 1.13 million tons of US soybeans to Chinese state-run firms. US exports 30 to 35 million tons to China in a normal year. China bought about 60% of US soybean exports in deals valued at more than $12 billion last year. The purchases confirmed today were less than $500 million. This week, the White House delayed additional payments from a promised $12 billion aid package for farmers stung by the trade war because it expected Beijing to resume buying US soybeans. The US Soybean Association said in a statement that the sale announcement would not fix the “prolonged period of low prices soybean farmers have faced since the trade war began.” US farmers stored soybeans after the fall harvest, instead of selling them to grain traders and processors, because of low prices and lack of alternative buyers. The 25% tariff Beijing imposed on US soy shipments in July in retaliation for American duties on Chinese goods remains in place. The higher duties discouraged private Chinese importers from making purchases as Brazilian soybeans, which are not subject to the tariffs, are less expensive.
Mexico: President Lopez Obrador’s Budget
Mexican Peso traded at 20.3100 per USD at 2:00 pm PST.
President Lopez Obrador will submit his 2019 budget to lawmakers on Saturday. MXN fell over 0.80% as the market is nervous to see if he can pull off higher social spending, tax cuts and pricey oil ventures without increasing debt. If he fails to convince the market he has a savings plan to fund welfare programs and new infrastructure, it could deepen a run on Mexican assts and put Mexico on course for ratings downgrades.
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This market update is prepared by Cathay Bank for informational purposes only and does not constitute any form of legal, tax or investment advice, nor should it be considered an assurance or guarantee of future exchange rate movements or trends. This information is provided without regard to the specific objectives, financial situations or needs of any recipient. Cathay Bank does not make any representations or warranties about the accuracy, completeness or adequacy of this market update.