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US China relations set to be more constructive under Biden administration

Throughout the Trump administration, the US/China relationship was a difficult one, as Trump often meandered between civil discussions to aggressive rhetoric when it came to trade talks. The primary sources of contention between the US and China related to imbalances in trade, technology and COVID-19 responsibility.

As its revealed  China will sanction Trump administration officials who they believe displayed ‘nasty’ behaviour towards Taiwan, Xinhua News Agency. Who later went on to display their joy at Trump’s exit by Tweeting “good riddance, Donald Trump”.

Whilst US President Joe Biden made no reference to China during his inauguration speech, it’s thought that he will take a less hostile approach in trade talks going forward, in a bid to ease tensions in US/China relations. China Daily stated that the US’ relationship with China is likely to have “more stability and constructiveness” under Biden administration.

Whilst Biden is said to take an assertive approach with China, it is uncertain as to whether fresh trade talks will take place in the near future.

US and Chinese flags next to each other concept of US-China tensions

Meanwhile, pound Sterling (GBP) and the Japanese yen (JPY) have gained ground against the greenback, as the US dollar (USD) has also fallen flat against a host of other major currency competitors.

At the time of writing, the pound to US dollar (GBP/USD) exchange rate stands at USD 1.37, and the US dollar to Japanese yen (USD/JPY) exchange rate is trading at JPY 103.8. The US dollar to euro (USD/EUR) exchange rate is also falling flat at EUR 0.82.

Whilst the US dollar (USD) may be struggling against its key currency rivals, the general economic outlook has grown more optimistic following news of Joe Biden’s USD 1.9tn coronavirus stimulus package.

Eurozone services hit by further lockdown restrictions

The euro (EUR) has failed to make any significant advances against the British pound (GBP) this week after Eurozone’s flash PMI data for January shows a contraction of 47.5, down from 49.1 in December.

Tomas Dvorak at Oxford Economics stated “the flash PMIs point to a looming contraction in Eurozone GDP in Q1. We don’t expect any meaningful economic recovery before the pandemic is brought under control.”

Germany, the Eurozone’s largest economy, has suffered significant losses within the service sector, shrinking for a fourth consecutive month as the country announced it would extend lockdown measures to 15th February.

Eurozone PMI data for the services sector also showed a contraction of 45.0, down from 46.4 the previous month.

Australian Dollars

Australian dollar tumbles ahead  of expected retail sales contraction

The British pound (GBP) has edged higher against the Australian dollar (AUD) despite Australia’s improved unemployment outlook. Data for this month showed that unemployment fell in Australia from 6.8% to 6.6%, though the promising news has failed to provide support for the Australian dollar (AUD).

At the time of writing, the British pound to Australian dollar (GBP/AUD) exchange rate is trading at AUD 1.78, while the US dollar to Australian dollar (USD/AUD) exchange rate is trading flat at AUD 1.30.

The Aussie dollar appears to have succumbed to fears that retail sales for December will prove less than ideal. Forecasts indicate that retail sales in Australia will have contracted by 2.5%, creating selling pressure for the Australian dollar (AUD).

However, promising PMI data for the manufacturing and services sector for January could help to provide a boost for the ‘Aussie’ currency.

New Zealand dollar money banknote Edmund Hullary close-up

GBP/NZD reaches best levels since December

Comments from the Bank of England (BoE) that interest rates would be left unchanged for the time being, saw the British pound (GBP) edge higher against the New Zealand dollar (NZD) this week, with the pound to New Zealand dollar (GBP/NZD) exchange rate touching NZD 1.90, its highest level since December.

Inflation data for New Zealand has been released and figures have proved to be more promising than expected. New Zealand annual Consumer Price Index (CPI) for 2020 reached 1.4%, having only forecast 1.1%. Following this news, it’s thought that the Reserve Bank of New Zealand (RBNZ) will leave interest rates as is for the foreseeable future.

UK data, however, is not as promising as UK flash PMI has been published for January and shows a reading of 40.6 down from 50.4 in December.

Chris Williamson, chief economist at IHS Markit stated: “services have once again been especially hard hit, but manufacturing has seen growth almost stall, blamed on a cocktail of COVID-19 and Brexit, which has led to increasingly widespread supply delays, rising costs and falling exports.”

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