The news over the weekend is that the US and China could be very close to reaching agreement to drop the tariffs. Part of the agreement involves China agreeing to larger purchases of American agricultural goods and lower barriers for US companies in China.
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The US dollar is fractionally stronger although the news is not a complete surprise as there has been optimism over some more positive outcomes from the talks. The US dollar is already weaker in 2019 from the reduced expectations of further interest rate hikes this year, the market is still quite tentative in its previous high expectations on the US dollar and the economy.
Friday is a very key date for the US dollar and economy with the latest Non-Farm Payroll data, reflecting changes in the US labour market. The previous figures of 304k new jobs being created are predicted to show a reduction to 185k, which may see the US dollar weaken.
The pound to US dollar rate has risen on Brexit optimism, over the reduced chance of a no-deal Brexit. The market has been keenly waiting for any news to provide some direction for sterling, this has allowed a stronger pound to make inroads against the greenback.
With the levels at such an elevated price on this optimism, we will need to see the news back up the expectations. Any increased political uncertainty for the UK or worse economic data could quickly destabilise the pound.
The key events are next week’s meaningful vote on the 12th, Mrs May is frantically trying to get support and any sign her deal will pass might help the pound to rise further.
The US dollar looks like it could remain slightly weaker, even with signs of optimism over the Trade Wars. That is because it will take some real signs that the damage done to global trade and confidence has evaporated, the negative effects for the US and the global economy could last for years.
GBPUSD levels should remain above 1.30 for now, but could quickly sink below if no-deal becomes a greater possibility once again.
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