Tariffs and protectionism continue to be the hot talking points but there has already been considerable resistance to Trump’s proposals with Wall Street and even members of his own Government pushing back, the feeling here is that Trump will need to reassess his plans. Such tariffs are likely to reward a small section of the economy while punishing the vast majority with higher costs. Goldman Sachs issued a scathing assessment of the plan yesterday and they’re unlikely to be the last. The USD found itself pushing back from lows in early trade yesterday but the broadly stronger euro and even advance from GBP through yesterday halted the greenbacks progress.
It was an interesting day for the euro, initially opening the week under pressure, the single currency shrugged off the outcome of the Italian elections and even discarded a whole host of weaker data. The fact that there was no clear winner in the Italian election has perhaps been taken as a positive, in that the anti-euro 5 Star Movement will not have control. However, the future of Italian leadership remains unknown and for the euro to completely ignore the risk is somewhat worrying. The single currency also shrugged off weaker PMI data in services and the regions composite reading, and investor confidence also missed the mark by some way. Retail sales however did beat their guidance but hardly enough to provide a sustainable lift for the euro. That remains the same today and it’s hard to be focused on Thursday’s ECB. EURUSD trades back above 1.2300, resistance higher holds around the 1.2360 area for now while yesterday’s opening lows around 1.2256/75 area provide support.
The pound staged a slight recovery through yesterday as PM May suggested that they were close to coming to an agreement on transition which helped sterling rally through the second half of the session. The pound had already found itself in favour following a better that expected services PMI print in the morning. GBP has seen some correction lower overnight but the Brexit process is key and further news of progress here will outweigh any data points.
Fed speak will be the highlight of the US calendar with the New York Fed’s William Dudley due across the wires. He’s taken a relatively neutral stance in the past but should we see him echo the recent hawkish rhetoric coming from the Fed the USD has scope to rally higher.