Yuan under pressure
CNY fell to its lowest level against the USD since 2008, reaching 6.9641 on news that America is preparing new tariffs on all remaining Chinese imports, if talks on 30 November between US President Trump and China’s President Xi Jinping fail. The new round of USD 257 billion in tariffs could come into effect as early as December.
Still, China has the fiscal and monetary firepower to support demand while remaining on track for rebalancing. And Trump could be over playing his hand. China’s USD surplus is ‘recycled’ into US treasuries, which allows Trump to run budget deficits with only marginal effects on interest rates. Removing China’s surplus would cause funding cost to rise. Markets continue to punish China in the US-China trade dispute. While US asset have been only marginally weak, Chinese assets have been abandoned. Trump is still pitching that a “great deal” is possible with China. His meeting with President Xi should result into a reduction of US-China trade war tensions.
UK budget weakens pound
Yesterday’s UK budget presentation by Chancellor of the Exchequer Philip Hammond took some steam out of sterling. His spending deficit of GBP 15 billion amounts to 1.40% of GDP in 2019, with boosts in healthcare, housing and fuel. The pound was not able to resist to traders’ GBP bearish view, putting it among the biggest losers in today’s trading session. For now, GBP/USD is trading along 1.2780, its lowest since August 2018, and approaching the 1.2760 range short-term.
Brexit worries continue: the hope that a Brexit agreement would be reached with the EU by 29 March 2019 is fading. Sticking issues relating to the Irish border have not progressed since the European Council Meeting on 17–18 October and are not expected to advance before next EU Council meeting on 13–14 December.
