The Dollar Bulls Are Losing to Trump

The Dollar is on the back foot at the start of the week and there’s nothing through the early part of the week to shift appetite other than the markets buying on the dips ahead of key stats this week, which are limited to February’s durable goods orders and prelim private sector PMI figures for March, scheduled for release on Friday.

The markets have certainly responded to the G20 Summit, the Summit leading to ministers pledging to no longer reject protectionism, while the statement also excluded the opposition to all forms of tariffs and rules favoring one economy over another.

The U.S administration certainly got its way, the U.S Treasury Secretary also adding pressure on finance ministers to strengthen their respective currencies.

The Currency War has begun and the nation wielding the axe is the most unexpected, Trump and the administration looking to give the U.S the advantage in delivering U.S manufacturers more favourable trade terms. The approach is certainly one that the markets are unaccustomed to, with the Swiss, Japanese and Chinese governments more akin to playing the currency game, though it will be tough for the Dollar to see weakness prevail over the longer-term, the greenback’s position in the currency rankings unlikely to change any time soon.

As we have seen in recent weeks, the Dollar Spot has recovered from an intraday low of 100.02 going into the European session, sitting down 0.14% at 100.16 at the time of the report.

The Dollar’s weakness is ultimately off the back of the U.S administration’s failure to deliver on campaign pledges, a $1tn fiscal stimulus package and tax reforms seemingly on the back burner and with the U.S administration’s desire for a weaker currency, the question will be how much further will the Dollar need to fall before Trump rolls out his campaign promises and that’s before the markets begin to consider whether each will pass successfully through the house.

FOMC commentary through the week will provide the Dollar with some direction, voting members Dudley, Evans, Kashkari and Kaplan scheduled to speak through the week along with FED Chair Yellen, who is due to speak on Thursday.

The markets will now be looking towards a June rate hike, which is some way off and there will be a lot of data for the markets to digest between now and the June FOMC, so any hawkish commentary will have limited impact barring any signals shifting the projection of rate hikes for the year.

With no macroeconomic data out of the U.S today, the U.S President is scheduled to speak tonight, which will be of particular interest to the markets and will likely have a material impact on the Dollar, especially if Trump takes his usual approach with the media and is relatively light on details.

Across the pond, the pound has recovered from intraday lows through the Asian session, with a bounce to $1.24052 going into the European open as the markets look ahead to the British government invoking Article 50, the Royal Assent having been given for Theresa May to move forward late last week.

The dip buying continues to provide the pound with support, though one does question whether the weekend’s G20 Summit has had more of an impact on market sentiment towards Britain leaving the EU. Britain’s bid to go it alone at a time when the G20 drops support for free trade, while also rejecting protectionism suggests that Britain is not going to be alone in looking to obtain the most favourable trade terms possible. The U.S administration has rocked the boat and the road ahead will be an interesting one, Prime Minister Abe’s meeting with Merkel and pledge to continue working closely with Germany a sign of how concerned export driven economies are over the uncertainty ahead.

The Dollar is likely to find its feet through the European and U.S session, though where the Dollar sits by the close will likely be hinged on sentiment towards Trump’s speech which comes after the U.S close, while FOMC voting member Evans is scheduled to speak late into the European session, Evans having been one of the few doves going into the March FOMC.