US may rekindle pact as part of talks

As US-China trade negotiations are scheduled to resume later today, albeit with damped down expectations of any broad trade framework agreement, speculation abounds in the US press that the US will reintroduce a previously agreed currency accord with China, which could suspend the introduction of the next set of tariffs next week. The accord was agreed in February, before talks broke down, and could be the first step toward more detailed, deeper discussions going forward.

In reaction, USD/CNH fell as much as 0.55% to a more than two week low of 7.0990, and is possibly looking to test the 55-day moving average at 7.08960. The move filtered across the other currency pairs with the US dollar under pressure. EUR/USD rose 0.19% to 1.0991 while AUD/USD jumped 0.34% to 0.6745. Even the beleaguered pound gained some respite, with GBP/USD rising 0.20% to 1.2230 and facing the first up-day this week.

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USD/CNH Daily Chart

US growth forecast downgraded

The Atlanta Fed has downgraded its Q3 growth forecast to 1.7% from 1.8% set on October 4 after the release of wholesale trade data yesterday pushed the expected contribution of inventory investment to GDP from 0.12% to 0.01%. The latest Bloomberg survey has Q3 GDP pegged at 2.0%, with the data scheduled for release on October 30, a day before the next FOMC meeting. Market pricing is allotting an 88% chance of another 25 bps rate cut at that meeting.

UK production data on tap

German trade data for August is expected to show a narrowing of the surplus to €19.1 billion from €20.2 billion as a result of a 1.0% monthly drop in exports. From the UK we get to see manufacturing and industrial production data for August. IP is seen falling 0.1% m/m after a 0.1% gain in July while the manufacturing side is expected to be flat month-on-month. The UK’s goods trade deficit is seen widening to £10.0 billion from £9.14 billion the previous month. A speech from Bank of England’s Carney rounds off the UK events.

US consumer prices are expected to rise 1.8%y/y in September, a mild acceleration from August’s +1.7% and could be welcome news to Fed Chairman Powell, who said this week that the Fed needs inflation closer to 2%. Fed’s Kashkari and Mester are scheduled to speak later in the day.

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