Dollar Strength Continues as Trumponomics Increase Fed Rate Hike Odds to 100%

Overnight, in the US trading session, the US Dollar corrected broadly lower against its major Forex counterparts. The Dollar had been on a seven day winning streak, which came to a sudden end. The benchmark reserve currency has been supported in the aftermath of the stunning US presidential election which not only saw Republican candidate Donald Trump pulling off a surprising victory for the White house, but the Republicans maintained control of both the Congress and Senate. Investors are trying to price in and come to terms with an on-coming policy pivot, from Trump that will boost inflation and possibly lead to more aggressive monetary tightening from the Federal Reserve. In reaction, the  Federal Reserve December rate hike bets increased to 100% as Donald Trump’s economic policies encouraged positive sentiment.  Traders saw more of the same during the day yesterday as the Dollar rose alongside US Treasury yields as the Fed’s rate hike path steepened further into 2017.

The almighty Buck is likely to gain traction during the hours ahead as a number of Federal Reserve officials are on tap to give remarks. Branch Presidents Jim Bullard (St. Louis), Neel Kashkari (Minneapolis) and Patrick Harker from Philadelphia are all on today’s speaking schedule. Since the election, official Fed-speak has endorsed market consensus as policy makes have maintained a cautiously hawkish tone. Several policy makers have noted that boosting of fiscal stimulus, a main part of Trump’s platform, will speed up the withdrawal of monetary support from the central bank. Should this pattern continue, with today’s speakers, then Dollar will get further support and appreciate more. US Dollar index is trading above 100, the index trades positively for the sixth day in a row.

Turning our attention back to Europe and the United Kingdom, we have seen some key economic data released from England over the last few days. Today’s European economic calendar is rather quite. The United Kingdom is set to release jobless claims today. The release is not very likely to impact the policy expectations with the Bank of England. The British Pound is very likely to shrug this data off today. The BOE Governor Mark Carney spoke yesterday that the central bank is now in a wait-and-see mode. They are on the sidelines watching the growing weakness of the Sterling Pound, its effect on inflation as well as the Brexit referendum. Carney added that the weaker-than-expected inflation data, this week, had no bearing and did not impact the Bank of England’s outlook on inflation or its trajectory. They are expecting inflation to overshoot their target of two percent by mid-2017.