Last Week’s FX and Economy Summary Dec 16, 2019

US-China trade deal underwhelms 

After mixed rhetoric during the week, US and Chinese officials announced late on Thursday that they had reached a phase-one trade deal. There was initial relief on the announcement with a decline in defensive assets including the yen and Swiss franc. 

Fresh tariffs planned for December 15th were cancelled, but overall details were vague with only a small cut in existing tariffs. China planned to increase purchases of US agricultural exports and did pledge to cut tariffs on US exports to China, although there was still a lack of detail which triggered some unease.

Markets were also concerned that no further progress was likely to be made and with a risk that the deal could collapse given underlying tensions.


The Federal Reserve held interest rates at 1.75%, in line with market expectations, with a unanimous vote. The Fed was relatively optimistic over the outlook and the interest rate projections from individual committee members indicated that no rate cuts were expected during 2020.

Chair Powell, however, also reiterated that there were important barriers to raising interest rates with an increase unlikely unless there was a sustained increase in inflation above 2.0%. 

There comments undermined the dollar on expectations that the Fed policies would undermine the dollar.

According to the latest CPI inflation data, the year-on-year rate increased to 2.1% from 1.8% with the underlying rate holding at 2.3%. The data dampened expectations of further interest rate cuts, although the market impact was limited.

Retail sales data was below consensus forecasts with a 0.2% increase for November. The dollar dipped to 5-month lows before recovering slightly.


Political developments dominated UK markets during the week. There was choppy trading ahead of the General Election with nervousness over the outcome and Sterling drifted lower.

The exit poll indicated that the Conservative Party would win a substantial majority and Sterling spiked sharply higher.

Results were broadly in line with projections as Prime Minister Johnson secured a majority of 80. There were, therefore, strong expectations that the UK would leave the EU by January 31st.

GBP/USD hit 19-month highs just above 1.3500 while the EUR/GBP declined to 31-month lows below 0.8300. There was a correction on profit-taking, but the currency still posted notable weekly gains.  


The ECB made no change to interest rates with the main refi rate held at 0.0%. President Lagarde reiterated that economic risks were biased to the downside, although she also stated that there were signs of stabilisation which helped protect the Euro.

German economic sentiment data reported a sharp improvement for December, although hard data was disappointing again with a dip in industrial production. 

EUR/USD hit 4-month highs at 1.1200 on hopes of improved political conditions before fading.


The Swiss National Bank held interest rates at -0.75%, in line with expectations, and repeated that it was prepared to intervene to weaken the Swiss currency.

Tim Clayton

Tim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics.

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