Above: File still of Scott Bessent. Courtesy of Bloomberg.
Currencies react to progress on China-U.S. trade + the key calendar events this week + the tactical snapshot for key GBP/EUR, GBP/USD, EUR/USD and other GBP exchange rates.
Big Picture:
Before central banks come into focus later this week, traders will be considering the constructive tone concerning China and U.S. trade relations.
It was reported at the weekend that negotiators in Malaysia had agreed a framework that would allow Presidents Trump and Xi to strike a deal when they meet in South Korea, later this week.
U.S. Treasury Secretary Scott Bessent said the U.S. and China have agreed on "a very positive" framework ahead of the Trump-Xi meeting. China's official state news agency Xinhua said that the sides had reached a "basic consensus".
Two weeks earlier, markets fell after Trump announced a new 100% import tariff on Chinese goods, by way of retaliation for Chinese rare earth export restrictions.
Currency Market Implications
The big losers of that news were the risk-sensitive currencies, such as the Scandinavian, New Zealand and Australian dollars.
The U.S. dollar, meanwhile, proved a relative winner, while the Franc and Yen also caught a bid.
The developments will ease renewed fears that the two sides were about to escalate a trade war, meaning those currencies that were the losers of trade war escalations will be the winners of improved sentiment.
Indeed, the Aussie and Kiwi dollars are outperforming on Monday.
The Calendar
Monday
German IFO business climate data will be released, offering an insight into economic performance in October. Last week's PMI survey for October showed a pickup in activity, so traders will look for some euro-supportive news from the release.
Tuesday
New Zealand monthly employment data is due. An undershoot should bolster the odds of another RBNZ rate cut and weigh on the New Zealand dollar.
UK GfK consumer confidence should point to some cautious improvement.
Wednesday
Australian quarterly CPI inflation will likely have an impact on the Aussie. The RBA looks pretty conflicted on what it's next moves will be, meaning data can hold sway over market expectations. The market looks for a 1.1% increase in the third quarter.
Wednesday sees the Bank of Canada rate decision; a 25bp cut to 2.25% is expected, but GBP/CAD action is more likely to be determined by GBP/USD price action.
The U.S. Federal Reserve decision should result in an interest rate cut. This is expected so could have limited market impact on its own. More important will be the Fed's guidance as to the potential for further interest rates.
This is particularly relevant given the lack of U.S. data of late, owing to the government shutdown. Should the Fed sound cautious, the dollar will likely rally.
Thursday
Bank of Japan will deliver its latest decision. No change in rates is likely, particularly given that a new government is in control. In fact the odds of an interest rate hike later in the year has receded notably. This can weigh on JPY.
The ECB will also deliver a rate decision in the coming week, and we see no reason to expect a different message than the "we're in a good place" in terms of interest rates and the economy.
Any euro exchange rate responses should be faded.
There's also some GDP data slated for the U.S. on Thursday, however, we would be cautious of any delays being announced owing to the government shutdown. Nevertheless, if released, it will almost certainly trigger FX market volatility.
Friday
Canadian GDP is out, which should show 0.9% y/y growth, and any deviation from the figure should bring some interest for Canadian dollar watchers.
U.S. PCE inflation data is due, again with the caveat of the shutdown. This is the measure of inflation the Fed watches, so it should be important.
We saw that last week's headline U.S. inflation print undershot expectations, but this had a limited impact on the dollar. It suggests we won't see any lasting damage to currency markets from the PCE print.
Strategy Snapshots
GBP/EUR (at 1.1468) remains heavy and looks set to test support at 1.1430 next. Rallies simply can't sustain and new lows are highly possible in coming days or weeks. The full tactical forecast is available here.
GBP/USD (at 1.3329) fell 6 days in succession last week, which tells you all you need to know: this pair is under pressure on a multi-day basis. 1.3248 is the next target, where the October 14 low lies. The full tactical forecast is available here.
EUR/USD (at 1.1629) is trading increasingly limited ranges and Monday sees another uninspiring open. The pair looks well supported in the 1.1570-1.1500 area. However, ongoing U.S. dollar resilience is capping an ability to rally.
GBP/AUD (at 2.0368) gaps lower on Monday, helped by the good news regarding U.S.-China trade. The pair has been steadily falling since mid-October and is close to testing range lows at 2.0291.
GPB/NZD (at 2.3115) has been steadily falling since October 17 as China-U.S. trade tensions peaked and then started to fade. News of progress on trade negotiations boosts the Kiwi further on Monday. A fall to 2.2958 is likely near term.
GBP/CAD (at 1.8626) is under pressure having fallen 6 day in a row. We're back towards the bottom of the short-term range and a test of lows at 1.8550 a risk.