Analysis

USD is today declining against the euro and the yen and shows an ambiguous dynamics with the pound

United States of America, USD is today declining against the euro and the yen and shows an ambiguous dynamics with the pound.

Investors are focused on the last meeting of the Federal Reserve this year and US-Chinese trade negotiations. The market expects the US regulator to raise the interest rate to 2.50% and clarify its plans for next year. For a long time, it was believed that in 2019 the Fed would raise the rate three more times, but now there are concerns that the regulator may reduce the rate of increase or completely stop it. FOMC is pressured by economic data, for example, a decline in oil prices, which may cause a decrease in inflation, as well as comments of US President Donald Trump, who has long been dissatisfied with monetary tightening.

Meanwhile, US-Chinese trade negotiations continue to move forward and, apparently, are successful. Yesterday, the US Treasury Secretary Stephen Mnuchin said that the representatives of the countries intend to meet in January to discuss the extension of the truce. He also noted that the parties are striving to conclude a specific agreement, where the details and terms of the execution of the deal will be clearly stated.

Eurozone

The euro is strengthening today against its main competitors - USD, JPY, and GBP.

The single currency is supported by reports that the European Commission reached an agreement with the Italian government and accepted the country's budget deficit of the next year at a rate of 2.04%. Other details of the agreement are not specified. Thus, Italy will not be subject to sanctions fines, which encourages investors.

Brussels began to actively prepare for the possible withdrawal of the UK from the EU without a deal. To this end, legislative measures are being developed in key areas of the economy, for example, financial, transport, and customs. They are designed to mitigate the effects of "tough" Brexit for European citizens.

United Kingdom

Today, the pound is weakening to the yen and the euro and has an ambiguous dynamics with the dollar.

Today, British investors are focused on the November inflation data, which were weak. The consumer price index fell from 2.4% to 2.3%, and the basic CPI – from 1.9% to 1.8%, the lowest since March 2017. Inflation was pressured by a significant reduction in prices for gasoline and real estate, but in part, it was offset by rising prices for tobacco. Thus, wage growth in the UK continues to outpace inflation.

On Thursday, a meeting of the Bank of England with the decision on the interest rate will be held. It is expected to remain at 0.75%, and members of the regulator will be careful in their comments. Probably, BoE will prefer to refrain from any significant actions until the Brexit procedure is finalized.

Japan

Today, the yen is strengthening to the dollar and the pound but weakens to the euro.

Japanese trade data published today turned out to be worse than market expectations. The trade deficit was 737 million yen. At the same time, the volume of imports grew by 12.5% (instead of the expected 11.5%), and the export volume grew only by 0.1% (instead of the expected 1.8%). The slowdown is caused by the reduction in supplies to the United States and China. For example, car exports to the United States declined by 7.0%, while reciprocal supplies of medicines, petroleum products, and corn increased by 8.1%.

On Thursday, a meeting of the Bank of Japan with the decision on the interest rate will be held. The key rate is expected to remain at the level of -0.10%, and in general, the regulator will refrain from any drastic steps.

Australia

AUD is weakening today against the euro and the yen and has ambiguous dynamics with the US dollar and the pound.

In the absence of significant releases, the movement of the Australian currency is technical. Investors are preparing for the Thursday release of November data from the Australian labor market. For the third consecutive month, the unemployment rate is expected to remain at a low level of 5.0%, and the employment rate will decline slightly, from 32.8K to 20.0K. In general, the Australian labor market in recent months is good.

Oil

Today, oil quotes have stabilized and are traded within a narrow range.

Yesterday, the pressure was exerted by the API report, according to which there was an increase in oil reserves in the US by 3.450 million barrels. At the same time, gasoline stocks increased by 1.77 million, and stocks of distillates decreased by 3.44 million barrels. In the evening, the market is waiting for the publication of a similar EIA report, which predicts a decline in oil reserves by 2.437 million barrels. Generally, the long-term factors that put pressure on prices remain the same. They are the expectation of growth in oil production and reserves in the USA and investors' doubts that a new reduction under the OPEC+ contract can balance the market.

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