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Dollar in Stable Condition… For now

By:
Bob Mason
Updated: Mar 28, 2017, 09:02 UTC

Trump and the team have managed to avoid a severe backlash from the media, the administration simply announcing that it’s time to move on to tax reforms

Dollar in Stable Condition… For now

The Dow managed to recover from larger losses through to the close on Monday, investor resilience providing Asian markets a sense of comfort through today’s Asian session, with the Dollar making up some lost ground ahead of the European open, coupled with a rebound across the Asian equity markets

Trump and the team have managed to avoid a more severe backlash from the media, the administration simply announcing that it’s time to move on to tax reforms. For now, the strategy certainly looks to be the correct one from a market perspective, financial markets having had limited interest in the Healthcare Bill, the only consideration having been the administration’s ability to garner votes in support of Trump’s policies

While Friday’s vote, or lack of, was considered by some as a litmus test on what’s to come, it would be too early to begin writing-off Trump and the ability of the administration to deliver on campaign pledges, tax reforms and a fiscal stimulus package in particular.

There’s plenty going on beyond U.S borders for the markets to consider and the fixation over the Healthcare Bill will likely make way for the British government, scheduled to invoke Article 50 tomorrow and the French election.

From a sterling perspective, we have seen the pound manage to stand its ground in recent weeks, buoyed by sentiment towards a possible reversal to August’s rate hike, sentiment driven by the surge in inflation supported by the latest retail sales figures, which suggests that the UK economy is not dead and buried just yet, despite the views of many.

Uncertainty over Brexit will undoubtedly be a factor for the markets to consider, but with negotiations unlikely to commence until the summer, the EU Brexit Summit not scheduled until late next month, any negative sentiment towards a hard-Brexit will likely be on hold, the market panic over a hard-Brexit and the effect on the UK economy having abated in recent days.

It could all change in the months ahead, but with the risk of a seismic political shift within the EU easing, the need for the Establishment to instil fear in voters looking for change has also abated, Macron looking set to take France, with support for Merkel resilient, despite concerns over a possible backlash over immigration and the refugee crisis.

Perhaps the ECB president’s lack of concern is justified, but it’s not done yet, with almost half of the French electorate undecided on which party to side with come April and, more importantly, May. Either way, as geopolitical risk subsides, the markets will also need to consider the fact that the Eurozone economy continues to gain momentum, the latest Ifo Business Climate Index figures out of Germany supporting the positive outlook, expectations of a need for the ECB to begin looking to a path towards normalization of monetary policy adding to the support for the EUR.

We may see the markets hold back on any material move on the EUR until the risk of a Le Pen victory has been wiped from the risk board, but with inflationary pressures evident, resistance may become futile, particularly if the polls begin to reflect a widening lead for Macron.

For the day ahead, it’s pretty quiet on the economic calendar, with key stats for the day limited to February goods trade and March consumer confidence figures out of the U.S. We can expect the markets willing to accept weaker than forecasted trade data, but consumer confidence will need to hold current levels for the Dollar to get through the day unscathed.

Interestingly, FOMC member commentary has seemingly gone unnoticed in the early part of the week, but as the markets join the U.S administration in putting the failure of the Healthcare Bill in the past, talks of a 4th rate hike for the year could provide the Dollar with further support ahead of inflation data out of the U.S on Friday, FOMC members likely to insist on the need for inflation to continue moving towards the FED’s 2% target.

European equities kicked off the day in positive territory, supported by a slight easing in the EUR, a market sell-off averted for now, with futures pointing to a positive start for the U.S markets this afternoon.

At the time of the report, the Dollar Spot Index stands at 99.292, a gain of 0.13%, with the EUR down just 0.06% at $1.0857 and the Dollar up 0.04% against the Yen. Cable bucks the trend early in the European session, up 0.2% at $1.2584 ahead of tomorrow’s landmark event. The markets will be looking for a catalyst for a Dollar rally to resume, talks of a fiscal stimulus package and hawkish FOMC member commentary likely to remain the key drivers for now, which suggests that the Dollar will likely tread water through the day.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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