Market News & Insights
26 January 2018

Trump Calls For A Stronger USD

Euro did a full round trip yesterday following the ECB’s press conference. EURUSD surged above 1.2500 as Draghi sounded more hawkish than markets might have expected, talking up growth and inflation and showing little sign of concerns about the euro’s strength. There was no change in terms of real forward guidance however and the euro gradually turned around through the afternoon and traded back lower, dropping as low as 1.2366 late last night.

The single currency has found some traction again this morning however and is .5% higher, trading just below 1.2450. EURGBP traded back to December lows around .8689 but the press higher in the single currency has brought this pair back up to previous support, resistance around .8760. It was in fact a USD recovery that saw EURUSD drop late last night, US President Trump called for the USD to get “stronger and stronger”, contradicting Steven Mnuchin’s comments the previous day, saying a weak USD was good for trade, although Trump did say that Mnuchin’s comments were misinterpreted. Risk appetite remained well supported, in Europe and the USD stocks traded higher and most major bourses are in the green this morning.

ECB policy yesterday was very much in line with expectations and so no real change. There was little chance we’d see the ECB adjusting policy in only their second major meeting since they hiked rates last September. However, markets were keen to see if there would be any change in the forward guidance. This was expected to be a risky more to the downside if Draghi didn’t back up the rather hawkish minutes from the December meeting but he remained positive on the economic outlook and a gradual increase in inflation and while he was given several opportunities to address the strength of the euro, he showed little concerns for the persistence rise in the single currencies value. The ECB’s Benoit Coeure speaks later in Davos but other than that the euro is data free and likely confined to recent ranges.

Year on year UK GDP is expected to drop to 1.4% from 1.7%. The pound has been rising higher on better data all week but broadly UK data has been mixed and generally lagging its peers. This would amount to growth of .4% through Q4 and while not the worst in the face of Brexit concerns, still lagging major economies. Anything weaker than expected will see GBP selling, especially as we saw EURGBP push to near 8 month lows while GBPUSD is up at 1.5 year highs. GBPUSD now holding below 1.4350, as next major support is a ways back towards 1.4000 area or so. Mark Carney speaks later on a panel in Davos, ‘the unreliable boyfriend’ as he’s been called will no doubt touch on policy but with no change expected any time soon, sterling may well remain unmoved.

We’ve been getting mixed signals from the US of late, the USD continues to plummet despite three forecasted rate hikes this year (while other major central banks are expected to remain on hold), Trump’s tax initiates are expected to feed through into GDP growth later in the year, the labour market remains buoyant and stocks are at all-time highs.

So what exactly is causing the USD to continue selling? Data has been slightly on the weak side and today we’ll be looking at US GDP expected to drop to 3% from 3.2%, durable goods orders are also expected to have slowed to .9% from 1.3%. This may weigh on the greenback into the weekend.