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Trumphoria dissipates and Trumponomics appears thin on substance

Trumphoria dissipates and Trumponomics appears thin on substance

The latest UK retail sales data was much weaker than expected, falling 1.9% in December. The data undermined near-term confidence in the UK economic outlook . There was also evidence of rising prices in the data which maintained concerns that higher inflation would curb consumer spending during 2017. Sterling came under pressure following the data, but did find support just above 1.2250 against the Dollar and resisted significant losses against the Euro, holding above 1.1530.

Prime Minister May announced that she would be visiting the White House this week, which increased hopes of a UK/US trade deal and provided some net Pound support. There is still a high degree of uncertainty surrounding the UK Supreme Court ruling on parliamentary involvement in triggering Article 50 due tomorrow. Dollar weakness pushed the UK currency to one-month highs above 1.2450 this morning.

Donald Trump has stated that he will not delay in “making America great again” and that he will “hit the ground running”. The protectionist rhetoric of the US president, combined with a lack of visibility on the new administration’s pro-growth agenda looks to be a short-term negative for the Dollar. We know that the Fed expects to raise interest rates three times this year, but it hinges on Trump delivering a major (plausible) fiscal stimulus plan.

The latest European Central Bank (ECB) survey of inflation expectations, from professional forecasters, raised the 2017 forecast to 1.4% from 1.2%. The survey maintained some expectations that the ECB would move towards a tapering of bond purchases, although the official rhetoric was still dovish.

Data to watch: 12.30pm Draghi speech.

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