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Last week, investors once again gave preference to the dollar. The DXY dollar index, which tracks the US currency against a basket of 6 other major currencies, ended the last week with a gain of 0.53% (+52 points) to 96.84. The escalation of the US trade conflict with China (the White House threatened to double the import duties on Chinese goods) also forces investors to choose the dollar as a defensive asset. In the new week, investors will pay attention to the speech of the head of the Fed Jerome Powell, the publication of data on US GDP for the 3rd quarter, the protocol from the November meeting of the Fed, as well as inflation index of consumer prices in the Eurozone.
British Prime Minister Theresa May has faced strong resistance in parliament with the promotion of a draft agreement on withdrawal from the EU. If the vote on the agreement fails, then Teresa May may be dismissed. It can also lead to a general election or a second referendum. The probability of a Britain exit from the EU without an agreement rose to 50%, against 20% the previous week.
As reported last Friday by the US Department of Labor, the average hourly earnings rose by 3.1% in October compared with the same period last year. This is the highest annual earnings growth since 2009. Unemployment in October remained unchanged, at the level of 3.7%. This is the lowest level since December 1969. The number of non-agricultural jobs increased by 250,000 in October. Economists had expected that the number of jobs in October increased by 188,000.
The US dollar continued to strengthen last week after the publication of the minutes from the September Fed meeting, according to which the US central bank is going to continue to raise interest rates. The Fed signalled the possibility of another rate hike in 2018 and three raises in 2019. Higher interest rates usually increase the demand for national currency. The dollar also receives support due to faster economic growth in the USA, than in other countries.
Negotiators from the UK and the EU over the weekend could not agree on measures to avoid the appearance of a physical border between the UK and Ireland. Negotiations on Brexit once again reached a dead end, reducing the chances of a possible conclusion of an agreement on the British exit from the European Union during the upcoming EU summit this week.
As reported last Friday by the US Department of Labor, the number of non-farm jobs increased by 134,000 in September (the forecast was +185,000). At the same time, the values for July and August were revised upwards by a total of +87,000. The unemployment rate dropped to 3.7% versus 3.9% in August, reaching the lowest level since the Vietnam War. Low unemployment, a continuing increase in the number of new jobs and higher real wages lead to higher consumer spending, which contributes to the growth of GDP.
The new week has already begun with a gap in the quotes of the Canadian dollar. As it became known, last Sunday the US and Canada reached an agreement on NAFTA. This is a positive factor for the Canadian currency, which reached its highest level in four months against the US dollar. Also worth highlighting Tuesday, when at 04:30 (GMT) will be published decision of the RB of Australia on the interest rate, and Friday, when at 12:30 (GMT) the US Labor Department will publish data on the labor market for September
This week two of the world’s largest central banks hold meetings and decide on the interest rate. Wednesday at 18:00 (GMT) the Fed’s will publish the decision on the interest rate, and at 21:00 (GMT) – the RBNZ. It is expected that the US Central Bank will raise the interest rate by 0.25% to 2.25%. The probability of such a decision, according to the CME Group, is almost 100%. Many investors have already have pawned in the prices another rate hike in December, and they will be interested in the Fed’s monetary policy course planned for the next year. On the part of the RB of New Zealand, investors do not expect changes in the current monetary policy, despite strong data on the country’s GDP for the 2 quarter, published last week.
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