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Trump inauguration causes market collywobbles

Trump inauguration causes market collywobbles

Theresa May, speaking before world leaders at the World Economic Forum in Davos, continued to pledge that the UK would play a greater role in global trade and push for new deals after the EU exit. As the tone and rhetoric matched Tuesday’s press conference there was limited impact on the markets. The markets are continuing fret over the medium-term uncertainties.

Sterling again held above 1.2250 against the Dollar and above 1.1550 against the Euro, fleetingly breaking 1.1600. Today’s retail sales data is liable to trigger short-term volatility, although political developments are liable to have a more important impact over the next week. Markets will have half an eye on the Bank of England monetary policy meeting at the beginning of February.

US Treasury Secretary nominee Mnuchin voiced support for a strong Dollar policy, although the rhetoric was ambiguous which maintained underlying uncertainty over Trump’s likely currency policy.

Despite the US Dollar trading sharply higher following stronger data (housing starts, jobless claims and the Philadelphia Fed index), the rally fizzled out by the end of the evening. This was due to Fed Chair Janet Yellen fuelling uncertainty over the impact of the incoming Trump administration’s fiscal policies.

For those of you who haven’t heard, Donald Trump will be inaugurated today amid much pomp and circumstance. Whilst political opinions are split, investors are dumping Dollars ahead of the ceremony as they worry about the incoming administration’s trade and currency policies.

The Euro dropped across the board on Thursday after the European Central Bank left its monetary policy unchanged. Draghi continued to insist that there would be no short-term move to taper bond purchases and rates will remain at present levels or lower for an extended period of time.

Draghi announced the near doubling of the rate of headline inflation from 0.6% to 1.1% in the November-December period. This suggests that the rise in price pressures is mostly from energy and that he sees “no convincing upward trend in underlying inflation”.

Data to watch: 7am EUR German Producer Price Index. 9.30am UK Retail Price Index and RPI ex Fuel. 6pm Trump speech & Baker Hughes oil rig count.

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