Dollar Falls as Trade Optimism and Domestic Uncertainty Take Their Toll

The US dollar is lower against major pairs on Friday. US-China trade talks wrapped up in Beijing with little details, but official comments continue to be positive and a possible memorandum of understanding between the two nations calmed investors. Negotiations are headed back to Washington ahead of the March 1 deadline, but with a possible extension in the works. Markets rose as good news on the trade front came from Presidents Trump and Xi.

There was international progress, while domestically uncertainty rose as President Trump declared a state of national emergency to fund the border wall. Softer economic data released this week depreciated the US dollar as safe haven flows dried up with China and the US closer to a trade deal.

OIL – Soft Dollar and Supply Disruptions Push Crude Higher
STOCKS – Trade Talks Boost Global Stocks
GOLD – Trade Optimism and Trump Emergency Calls Push Gold Higher
GBP – Pound Bounces Back on Friday on Strong Retail Sales

OIL – Soft Dollar and Supply Disruptions Push Crude Higher

Oil prices surged on Friday after positive comments from the US-China talks. US President Trump was optimistic about a deal with China. The trade war between the two largest economies had put downward pressure on crude as global energy demand fell. As a deal appears to be close as negotiations move to Washington it gave oil a double boost as it also softened the US dollar as it reduced its appeal as a safe haven.

OPEC and major producer compliance with the production limit agreement have kept crude prices stable. Venezuelan and Saudi supply disruptions combined with a weakening dollar to push West Texas Intermediate above $55. US sanctions against Venezuelan energy exports and the reduced capacity at Saudi Arabia’s oil field sparked a rise in crude prices with Brent rising 2.23 percent on Friday.

GOLD – Trade Optimism and Trump Emergency Calls Push Gold Higher

Gold rose on Friday as political uncertainty in the US drove investors to the safety of the metal. Progress in the US-China trade talks depreciated the greenback as risker assets were more attractive, while President Trump’s impending showdown with Democrats on the border wall funding accelerated the sell-off of dollars.

Trade war concerns eased, but are not fully out of the picture as more details are needed as the March 1 deadline is near. Brexit news could lead to more investors flocking to gold for safety as the gap between the expectations fo the UK and the EU continues to be sizeable with a fast approaching deadline.

GBP – Pound Bounces Back on Friday on Strong Retail Sales

The drop in the US dollar gave some breathing room to G10 currencies with sterling the biggest winner with a 0.70 percent rise. A stronger than expected retail sales data point in the UK put Brexit concerns in the sidelines as the currency pair trades at 1.2891. British Prime Minister Theresa May suffered another massive defeat in her efforts to pass a Brexit amendment through the house of commons. The EU remains unmoved by the struggles and has offered no flexibility, despite British parliament pushing back on the agreement on hand.

The pound was under pressure all week as a no-deal exit reinserts itself in the possible scenarios. Despite the 1 day surge, cable remains in the red with a 0.36 percent fall at the end of the week. The March 29 deadline will not be enough as there are still too many factions forcing their views and without reaching a consensus the only viable option is for the EU to extend the deadline, but that would only be a short term solution as the issues under discussion appear hard to reconcile at the moment.

STOCKS – Trade Talks Boost Global Stocks

International politics eclipsed local issues as the stock market advanced despite President Trump calling for a national emergency on Friday. The US avoided a government shutdown with the signing of the spending bill that was agreed between Republicans and Democrats, but in an attempt to bypass congress Trump could face legal challenges to achieve his objective of 8 billion dollars.

The U.S. Federal Reserve has pumped the breaks on its tightening of monetary policy and economic data released this week validates their decision. US retail sales and industrial output missed the mark by falling more than forecasted.

Trade talk progress and the certainty of avoiding a government shutdown pushed markets higher as deadlines loomed, border war funding emergency or no, will be a longer drawn out affair with less clear market impact.

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