We constantly warn about it and it happens regularly enough to be a rising concern but once again Donald Trump kicked the legs from under the USD, citing his concerns on raising interest rates in the US and the stronger USD. This comes as no surprise, especially considering the USD’s recent rally to fresh 13 month highs and at a time when the USD is in considerable focus amidst emerging market chaos, it was almost only a matter of time before Trump said something. And while he may have a point on it, the office of the President is meant to remain independent to the Fed and as such comments like this are very rare, well they were rare in previous administrations.
There has been the very obvious move back into USD from emerging market currencies, the ongoing issues between the US and Turkey and Turkey that turned into an economic standoff with currency as the focus and of course over the weekend the greatest currency devaluation in history in Venezuela. Then of course there are the constant accusations from Trump, with much of his irritation directed at China and even Europe.
The USD index is down over 1% from yesterday highs, and 1.5% from last week’s 13 month higher print. The greenback is down almost across the board vs its G10 peers and even in EM space the dollar remains under offer today. We have been here before, the USD can bounce back from this point. It’s certainly not a total turn around in the strong USD trend and I would not be at all surprised to see a member of the Trump administration dilute the comments in the coming days, after all the US has long voiced its desire for a long term strong USD and Wednesday’s FOMC minutes may well see the dollar back on track.
EURUSD traded above 1.1500 this morning on that heavy USD selling, this bounce sees the pair move into an area of heavy congestion, and will likely see 1.1535/50 area hold any major moves higher for now. 1.1432 should provide some firmer support to a move lower intraday.
Not much happening elsewhere. General risk appetite has found itself supported to welcome in the week, continuing on the trend from the end of last week. We remain in summer market conditions and volumes traded are lower than usual and this can sometimes cause some irrational moves if we see a sudden spike in trade in thinner liquidity. We’d expect to see things pick up from next week and into the September markets will be once again on full throttle.
The pound has been enjoying some rebound vs the USD since last week, 1.2846 was the high today but as long as we remain below the 1.3000 area the downside likely still attracts. It’s not pound strength that is driving this GBPUSD higher, just the USD weakness. One look at EURGBP and we can still see sterling vulnerabilities as the pair holds just below .9000 area, .9030 is where we’ve run into large sellers and orders boards suggests that remains the same for now. UK Finances data headlines the morning’s calendar but it’s unlikely to cause any big shift in GBP’s outlook. Focus for the pound is now well and truly on Brexit and unless we see some favourable progress towards a less disruptive divorce, the pound is at risk of further selling.