Good morning,

USD: 90 Day Truce

The dollar is weaker across the board this morning as Trump’s meeting with President Xi on the sidelines as the G20 gathering ended with a truce on trade. President Trump has agreed to postpone the hike on Chinese goods that was planned for January 1st for three months and in return, China has agreed to purchase a “not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product.” President Trump has also stated that China had pledged to lower its own tariffs on cars coming into China from the US from 40% to 15%.

While the dollar is weaker and emerging market currencies stronger this morning in an impulse of pro-risk buying, a 90-day furlough on additional trade is simply another can kick that means another deadline in the future that could see international trade become more expensive.

The Singaporean dollar, Korean won and Taiwanese dollar are the currencies that remain the most exposed to volatility in global trade.

GBP: Legal hurdles

I’ve lost count of the number of times I’ve been told that the coming week is an important one for Brexit but, lo and behold, the political commentators are saying exactly that. While the Rubicon of the ‘meaningful’ vote is next Tuesday, the government is today under pressure to publish its own internal legal advice underpinning the terms agreed with the European Union over the Northern Irish border backstop.

GBP is higher against the dollar courtesy of the wider weakness in the USD but has remained weak against the single currency; next week’s vote is looming large on the horizon and will keep the pound from adding too much anytime soon.

Labour’s calls for a vote of no confidence in the May government should she lose next week’s vote hasn’t materially impacted things. Two-thirds of MPs would need to back the motion, with a significant number of Conservative MPs needing to side with Jeremy Corbyn. In our eyes, it’s more likely that Jacob Rees-Mogg announces that he has a Michel Barnier advent calendar.

EUR: Watch Italy and Germany

It is the first working day of the month and with that comes the latest run of PMI sentiment surveys from the world’s manufacturing sector. While China’s and the US’s will be in focus courtesy of the headlines on trade, we’re focusing on Germany’s and Italy’s this morning.

Germany’s manufacturing sector has also been affected by the weakness in global trade but also local issues such as heightened emission standards in the car industry have caused higher costs and a slowing of growth, we will look to see whether those impacts have started to weaken.

Similarly, in Italy, local unemployment has jumped to 10.6% from 10.1% in October as more people re-joined the labour market looking for work. The manufacturing sector could easily be a beneficiary.

As long as the headlines around global trade remain positive, the euro will remain supported.

Have a great day.