Both major economic and political events, including US-China trade negotiations and Brexit agreements, are being considered for extension. This seems to have a positive impact on the financial market around the world, especially in China, as well as on the movement of the British pound. The final results of both events will likely to be at the end of May 2019
Specifically, the US president, Donald Trump, recently expressed optimism about the process of trade negotiations with China around key issues and has delayed raising tarrifs on US$200 bn of Chinese goods. The tax increase period is initially scheduled for March 1, 2019 and may be extended for another 60 days. The movement shows the White House’s commitment to achieving a “fair” trade agreement instead of falling deep into the trade war. However, it is clear that the time for negotiation between the two parties is quite short in order to reach a comprehensive agreement. Therefore, we suppose that a high chance of a soft agreement through the signing of a memorandum of understanding (MOU) with a focus on trade, requesting China to stop intervene its currency, improving intellectual property protection, and opening the market to foreign investors.
Meanwhile, the government of the British Prime Minister, Theresa May, and the National Assembly seem to have not found an agreement in the negotiation process with the EU. Currently, observers mention many different scenarios in which the worst scenario is associated with the case of Britain leaving the EU without any agreement. However, we think a high chance that the UK will activate Article 50 to delay Brexit for another two months. The deadline will be May 23, 2019. The British pound has rebounded strongly in recent sessions because the concerns about a no-deal Brexit softened. Currently, the British pound and Euro are the main currencies to keep the USD around 96 points.
In our opinion, the negative news related to the Brexit and the European economy has been reflected and pushed the Euro to near the historical bottom. Therefore, positive news will boost EURUSD and GBPUSD exchange rates, meaning that the US Dollar will decrease in the foreign exchange market. For emerging and developing countries (EMDEs) trading and borrowing US Dollar, exchange rate pressure will ease.