The Markets Enter the Eye of the Storm – Dollar in Focus

The market panic of Wednesday turned to a partial recovery on Thursday as the markets considered the ‘what ifs’ should Trump be pushed out of the Oval Office. Economic data out of the U.S was certainly timely, the continued drop in weekly jobless claims and the bounce in manufacturing activity in Philly a reminder that the U.S economy is on a sound footing and expected to recover from the 1^st quarter lows through the current quarter.

It may be too early to say whether the markets have moved on from the scandals hitting the White House, Trump denying the claims made by Comey, which is a dangerous game considering the start of an investigation and alleged evidence to the contrary, time will tell.

Sentiment has been knocked and the real issue for the markets will be whether there is belief that pro-growth policies will prevail regardless of whom is sitting at the helm. For now, we can expect doubts to weigh on the markets on whether a fiscal stimulus package will be on the horizon, with the current scandal seeming to have put the brakes on tax reforms due to be rolled out through May.

There’s a lack of material economic data out of the U.S today to provide distraction from Capitol Hill to provide support for the Dollar, leaving the Dollar on the back foot through the early part of the day, the Dollar Spot Index down 0.27% at 97.611 at the time of the report.

FOMC member Bullard may look to put a spin on the noise from Capitol Hill this afternoon, but as a non-voting member there’s unlikely to be a material impact, the markets now questioning whether the FED will be able to lift rates next month should the investigations be in full swing. Economic data suggests that the FED can keep going and perhaps that would be the best approach, the FED ultimately showing their confidence in the U.S economy and lack of influence from political noise and scandal.

Across the pond, stats are limited to May’s CBI Industrial Trend Orders, which could provide direction for the pound should the numbers diverge from forecast, with sentiment to the pound certainly improving following this week’s stats, the only blemish on the scorecard being the weaker wage growth, which came despite a fall in the unemployment rate. Solid retail sales amidst a rising consumer price environment will likely remain the challenge for the UK economy in the months ahead, but if the BoE’s got their forecasts askew, the prospects of a rate hike towards the end of the year could see further upside for the pound, which couldn’t hold on to $1.30 levels following Thursdays stats.

From Europe, macroeconomic data is limited to Germany’s April producer price index figure, which is forecasted to rise following the stagnation in March, any upside a positive for the EUR, as questions continue to be raised over the ECB’s dovish tones and whether there’s likely to be a shift in sentiment towards monetary policy in the coming months, the EUR currently up 0.32% to $1.1139.

We will expect the Dollar to remain under pressure through the rest of the day, the markets pinned to the wires looking out for any noise from Capitol Hill, with the lack of stats through the day providing little solace for the Dollar, whilst European equities stabilize following the gains overnight in the U.S and in the Asian markets this morning.