It’s D-Day – Dollar Readies for a Big Swing

It’s going to be a long day for the markets, waiting on the U.S president to address Congress, with Trump scheduled to speak at 9pm GMT.

There’s certainly plenty of debate and noise over what will be covered in the address to Congress, the possibilities endless. The administration has recently come forward on their intentions to revamp the healthcare system, while also making the promise of phenomenal tax reforms, which could include details of a border-tax plan.

The Dollar has been left in limbo in recent weeks over the FED’s uncertainty over Trump policy and there’s going to need to be more than the promise of reforms and overhauls, as the market’s uncertainty has also built up over the last few weeks.

The timing of Trump’s address to Congress is perhaps poignant considering the fact that seven of the ten voting members of the FOMC are scheduled to speak through the week, with the FED Chair and Vice-Chair rounding things off before the Committee enters its blackout period ahead of the March meeting.

If there was ever a time for the Dollar to rediscover its legs, it’s this week with the U.S President capable of easing the FED and market’s uncertainty that had left the markets pricing out a March rate hike.

FOMC voting member Kaplan spoke on Monday, clarifying that he believed rates would be lifted over the near-term, somewhat more hawkish than the sooner rather than later comment given in his previous speech. The hawkish comment led to a spike in U.S Treasury yields and there’s still plenty of commentary to come, with voting member Harker speaking later today, ahead of Trump’s address, Harker already one of the more hawkish members of the FOMC.

Kaplan’s comments alone have lifted the probability of a March rate hike to 52% and should Trump deliver detailed plans to Congress, FED Fund Futures data is likely to lead to a lift from the current 52% probability of a March move by the FED, particularly if Harker maintains his outlook on 3 rate hikes for the year.

While the key driver through today will be Trump’s address and Harker’s comments if any, on a March rate hike, economic data out of the U.S is also likely to have an impact, though the Dollar’s response time may be slow with so much focus on the President’s address.

2^nd estimate 4^th quarter GDP, January trade and February’s CB Consumer Confidence figures will be the key stats on the day. Forecasts are for the 2^nd estimate GDP to see an upward revision this afternoon, while the trade deficit is expected to widen and consumer confidence is projected to see a marginal easing. Based on forecasts, the stats are Dollar positive, consumer confidence needing to remain robust to provide the FED with the confidence in the economy over the near-term.

The Dollar struggled through the Asian session, the Dollar Spot Index moving within a tight range despite the uptick in the probability of a March rate hike, falling just 0.15% to an intraday low of 100.98, but we expect appetite to build through the European and U.S session, the markets expecting Trump to ultimately unveil tax reform plans as a minimum.

At the time of the report, the Dollar Spot Index stood at 101.10, down 0.04%, with the Yen finding support from the uncertainty of how Trump will handle his address to Congress.

It will certainly be an address worth tuning into…