US-China Trade Truce? GBP Soars

10/11/2019 1:25 pm EST

Focus: FOREX

Adam Button

Co-Owner and Managing Director,

The possibility of a US-China trade accommodation is bullish, even if it’s not a comprehensive deal, reports Adam Button.

The market is pricing in a US-China trade deal that includes no new tariffs in exchange for agricultural purchases and a hollow FX pledge. That's nothing like the comprehensive deal many were hoping for but there is a reason the market liked it anyway. The Canadian jobs report is due Friday, but trade headlines will continue to dominate.

A 'trade deal' is the wrong term to describe what appears to be shaping up between the United States and China. This is more of a ceasefire that includes the bare minimum for both sides to save face at home and mitigate economic damage.

This wasn't what anyone was hoping for, but markets are signaling it's good enough for now. Why? Mainly because it appears the United States is backing down. If the truce comes together (and that's still far from certain at this point), it's because the United States has backed down. They have been the aggressor in this fight and if President Trump has had enough for now then he's not likely to escalate it until after the election.

In addition, this type of deal leaves enough uncertainty intact to keep the Fed easing cycle going. Or at least the market thinks it does. We will be watching for any signals to the contrary ahead of the Oct. 19 blackout.

Looking further out, the deterioration in the US-China relationship is dire. The 'uncertainty that the Fed has been lamenting on trade is now a permanent feature. It's entirely clear that a decoupling is underway, and the only variable is the pace.

There are also important questions outside of the two countries. Those who can continue to trade openly with both sides stand to benefit, even if the overall picture means slower global growth.
Pound Sterling Soars

British pound sterling made its biggest weekly percentage gain vs USD in more than two years and its fourth fastest rise in 10 years amid successive positive news on the Brexit negotiations front.

A solid Canadian jobs report dragged USDCAD lower by nearly 80 pips to 1.32. Markets now await comments from President Trump on his meeting with China's vice premier as the US-China talks enter their 13th round.

The other story is that of U.S. Dollar Index selloff as the index broke its 55-day moving average. GBP extended its rally this morning when UK Brexit minister Stephen Barclay told ambassadors from the 27 EU member states earlier on Friday that sufficient progress had been made with his EU counterpart Michel Barnier in order for discussions to intensify. More developments are awaited ahead of next week's EU summit as well as the reaction from the Democratic Unionist Party (DUP). GBP bulls are now reasoning that Boris Johnson had little choice — either to ask for a delay or accept a deal— instead of being ready to leave without a deal.

GBP is now the best G10 currency performer since July 1, the start of Q3, and is the third best performer year-to-date (behind CAD & JPY).

Adam Button is co-owner and managing director of and a contributor at You can see Ashraf’s daily analysis at and sign up for the Premium Insights. Ashraf's Tweet on indices here.

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