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Trump turnaround

Trump turnaround

GBP
CBI retail sales printed in line with consensus forecasts with 12 for January, down from 20 in December. Retailers remain cautious of February’s outlook and there was further evidence of weakness in the car sector. Sterling capitalised on Dollar weakness and advanced to fresh 19-month highs near 1.4350.

Against the Euro, Sterling fell to 1.1300 before recovering to just above 1.1430. Markets maintained optimism surrounding Brexit negotiations with the potential for a transition deal to be agreed formally by the end of March. Sterling corrected lower late in Europe and losses accelerated as the Dollar recovered ground. Theresa May’s rebuke of Chancellor Hammond over Brexit rhetoric contributed to the sell-off. There was also evidence of fresh tensions within the Conservative Party and a potential leadership challenge on May. Overall, there was a slide to near 1.4100 against the Dollar following a Trump tweet favouring a “Strong Dollar” before a sharp recovery to near 1.4250 on Friday. Today’s data includes the latest UK GDP release.

USD

US initial jobless climbed to 239K for the week ending January 12th which was up from the prior reading but lower than consensus forecasts. US new home sales fell 9.5% m/m in December. That said, US indices continue their charge, closing at record highs once again. The Dow Jones closed up 0.5% at 26.392, the S&P gained 0.05% at 2839.

Only a day after Treasury Secretary Mnuchin stated the weak Dollar was good for trade, Trump has lived up to prior form and thrown a spanner in the works, again. President Trump, in a speech yesterday at Davos, stated how the Dollar would only get stronger and stronger, and this comment was good for the Greenback. There is definitely confusion coming from the Trump administration, not only has he contradicted Mnuchin but also himself. Before his inauguration, he stated how the Dollar was too strong. This indecision will ultimately create concerns for Dollar protectionism and will keep Dollar traders on their toes.

Investors and traders listened to Trump’s remarks as the Dollar picked itself up from three-year lows. Cable hit intraday lows of 1.4088 whilst the Euro dropped to lows of 1.2371.

EUR

The Euro soared 1% to a three-year high versus the Dollar yesterday after the European Central Bank (ECB) left monetary policy unchanged as expected, reiterating that economic expansion continued to strengthen but inflationary pressures remained subdued and warranted monetary accommodation.

With the Euro up 4% this year and 6% since the last ECB meeting, the focus was on how the governing council viewed this development in relation to the downward pressure it would exert on already soft inflation. In the press conference, President Draghi said the Euro had risen partly because “the use of language in discussing exchange rate developments doesn’t reflect the terms of reference that have been agreed”. This phrasing contains a coded rebuke for the US Treasury Secretary and hints at influencing the EURUSD rate. However, he refrained from directly referring to the Euro’s rise as something that was featured in their discussions, and simply referred to it as a source of “uncertainty” in the outlook. Markets continue to bet on the central bank scaling back its monetary stimulus due to strengthening growth.

Data To Watch:

09:30 GBP Gross Domestic Product (QoQ) (YoY) (Q4)
10:00 EUR ECB Cœuré Speech
13:00 USD Fed’s Bullard speech
13:30 USD Gross Domestic Product Price Index (Q4)
13:30 USD Gross Domestic Product Annualized (Q4)
13:30 USD Durable Goods Orders (Dec)
14:00 GBP BOE’s Governor Carney speech

 

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