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It’s Risk on Dollar Off with the Pound and OPEC in Focus

By:
Bob Mason
Updated: May 25, 2017, 08:39 UTC

A relatively quiet day on the economic calendar will give the markets some time to consider what lies ahead for Trump and the FED’s intentions vis-à-vis

Risk On Ahead

A relatively quiet day on the economic calendar will give the markets some time to consider what lies ahead for Trump and the FED’s intentions vis-à-vis shrinking the balance sheet, the FOMC meeting minutes released on Wednesday giving nothing new for the markets to chew on, the content in line with expectations.

Through the U.S session and the first part of the day today, we’ve seen the Trump Dump in reverse with much of the talked about unwinding of the Trump rally going into reverse with the Dow recovering to 21,000 levels on Wednesday. The hype over the media attack on the U.S administration certainly led to some kneejerk reactions, but with the investigations ongoing, some degree of sanity has returned to the markets, talk of impeachment dying down for now.

It’s a risk on day, with the markets looking ahead to the heavily anticipated OPEC meeting, the only question being whether there will be some testy negotiations behind closed doors that could scupper what many expect to be a done deal, crude oil prices continuing to move ahead at the time of the report.

European equities are in positive territory through the early part of the European session, taking the baton from the Asian markets, which delivered off the back of the positive sentiment from the U.S, which looks set for another win with Dow Futures up 66 points at the time of the report. The market bulls will be calling for the U.S president to take more trips overseas, staying clear of the FBI, the NSA and any other agency that could be involved in investigations into White House actions.

Draghi’s speech on Wednesday provided little for the markets to consider, the ECB president continuing to play the neutral monetary policy tune, playing down any hopes of a move towards normalization. The markets seem to be unconvinced however, with recent economic data out of the Eurozone continuing to suggest that monetary policy is too accommodative for the current economic outlook, despite underlying inflation continuing to lag, with unemployment and overcapacity pegging back wage growth being the ECB president’s primary concern.

Despite Draghi’s sentiment, the EUR has managed to recover to $1.12 levels, with the EUR up 0.2% at $1.1241 at the time of the report, following on from the gains on Wednesday. We would expect the EUR to be moving towards $1.15 levels, when considering the macroeconomic data coming out of the Eurozone and the general sentiment towards the Dollar at present, so while there are suggestions that the ECB president is having little impact on the EUR, Draghi is certainly creating a drag effect for now.

Across La Manche, its 2nd estimate GDP numbers for the first quarter out of the UK, together with 1st quarter business investment figures. The pound could find some support should the GDP numbers hold or come ahead of 1st estimates, with the forecasted uptick in business investment in the 1st quarter a plus if the numbers are close, though we expect the pound to continue to struggle to break free of $1.29 – $1.30 levels until the BoE shifts on its neutral position and begins considering reversing last August’s rate cut.

Dollar weakness will likely prevail through the day, with the Dollar Spot Index down 0.31% at 96.94, with the EUR and the pound likely beneficiaries off the back of recent positive economic data and continued market concern over the U.S administration and a fairly lacklustre set of FOMC monetary policy meeting minutes, the big event of the day being the OPEC meeting.

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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