Trump Brings Down the Dollar and Risk Appetite

The Dollar has fallen into the hands of the U.S president once more and that’s never a good thing for the Dollar bulls, though this time perhaps even Trump had not intended to bring down the house, with the Dollar on the slide and the Dow Mini Futures pointing to a 95 point slide at the time of the report.

Perhaps the admission of sharing classified information to Russian officials and an attempt to justify the actions via Twitter was a step too far for the markets, with the Dollar on the slide through the Asian session, with the Dollar Spot Index falling to an intraday low of 97.864 before making a recovery going into the European session.

It’s too early to say whether the markets are overreacting to all of this, but overreaction or not, the direction of the Yen and gold are also telling on just how the markets feel about the rise in political risk on the hill.

Perhaps if the administration had delivered on its numerous campaign pledges things would have been less alarming, but there continues to be green around the ears and the markets continue to be first respondent to the noise from Capitol Hill.

With the Yen sitting back at ¥112 levels having made a run at 114 and gold on the way towards a 5^th consecutive day of gains, the great Trump trade looks prime for an unwind unless the administration begins to get into damage limitation mode and there are no material stats out of the U.S today to distract the markets from all the noise, though even with stats, they would have to be spectacular for a shift in focus.

Caution has certainly gripped the markets and we can expect the day ahead to be one of red for the Dollar and riskier asset classes.

Across the pond, Brexit continues to be demoted to a less significant event, providing some degree of support for the pound ahead of this morning’s claimant count, wage growth and unemployment rate numbers, though one does need to wonder how strong the stats will need to be for the markets to begin shifting sentiment towards the BoE’s neutral monetary policy position. The BoE has continued to raise concerns over the labour market and rising consumer prices, the combination of which are expected to weigh on household consumption and the economy in general.

Today’s stats will provide part 1 of the 2 part story, with Friday’s retail sales figures there for the markets to consider at the end of the week. Positive numbers today will ease some of the pressure with the negative sentiment towards the Dollar providing further upside for cable should we see better than forecasted figures.

At the time of the report, the Dollar Spot Index was sitting down 0.06% at 98.046, in what looks to be a long and windy road in the wrong direction, while the EUR is up 0.05% at $1.10088 and cable up 0.09% at $1.2929 ahead of this morning’s numbers.

We will expect Dollar weakness to prevail through the day, the markets having little else to consider other than the risk aversion that has come off the back of Trump’s willingness to share, with the pound at the mercy of today’s stats.

Across the Channel, economic data out of the Eurozone is limited to finalized inflation figures for April, which will unlikely weigh on the EUR, which has eased back from $1.11 levels hit through the Asian session, but likely to have another run at intraday highs as the Dollar struggles through the day.