Trump Delivers on a Weaker Dollar, But For All the Wrong Reasons

Following a busy Thursday, with both the BoJ and the ECB delivering on monetary policy decisions, it’s a quiet day ahead, with no material stats scheduled for release out of Europe or the U.S for the markets to consider, Draghi having failed to deliver on hopes of a more hawkish outlook on monetary policy, with the BoJ standing firm on its current position, while also revising downward inflation forecasts that could ultimately drive the Yen lower with capital flows likely to go against the Yen.

Despite the Draghi’s position on monetary policy, the EUR moved to $1.16 levels before the close on Thursday and has seen further gains through the Asian session, with the EUR up 0.16% at $1.1647 at the time of the report.

Joining the doves was the RBA Deputy Governor, with Guy Dubelle talking down any hopes of a shift in monetary policy by the RBA this morning, the markets having jumped the gun earlier in the week, taking the minutes to have been more hawkish than normal, despite the minutes continuing to show member concerns over AUD appreciation, soft inflation and rising household debt outpacing wage growth.

It seems as though the FED Chair’s unexpectedly dovish commentary during testimony to Congress has been contagious and central banks have decided that any moves for now will likely be detrimental to economic growth outlooks, with Australia, the Eurozone and Japan’s economies heavily dependent upon trade.

Dubelle’s dovish commentary has led to the AUD down 0.69% to $0.7903 at the time of the report, with more decline in the offing as the markets consider recent gains in the AUD and the contributing factors to the gains.

In contrast, the EUR has managed to stand its ground and continue to appreciate, with the ECB president failing to peg back the EUR, the gains coming off the back of further Dollar weakness and more importantly the fact that the Eurozone has continued to perform and show signs of accelerated growth over the near-term.

Draghi has managed to talk down the EUR in the past, citing risks to the economic growth outlook, but the ECB removed reference to any headwinds to the economy in the previous meeting.

With the EUR on the front foot and the Dollar on the back, it’s going to be a challenge for Draghi and the team, who have enjoyed EUR weakness in support of a trade driven recovery, with wage growth tepid and unemployment rates, in certain member states, still considered too high for the economy to find support from domestic consumption. This may ultimately pin back the EUR from making any further material gains over the near-term, though it will ultimately depend upon events in Capitol Hill.

The markets may not have shown interest to news of Trump’s clandestinish conversation with Russian President Putin, but it looks as though U.S Special Counsel Robert Mueller was particularly interested, Mueller’s announcement of the investigations expanding into Donald Trump and business transactions weighing heavily on the Dollar.

Unsurprisingly, the Dollar slumped on the news and as things stand will likely remain under pressure, as the markets consider the type of dealings the U.S president was likely to have had before entering office, any hints of a relationship with Russia a certain red flag that could reignite talks of an impeachment, Trump Junior too junior a fall guy as far as Mueller is concerned.

At the time of the report, the Dollar Spot Index was down 0.12% at 94.189 and sub-94 levels are certainly on the cards, with the markets having little distraction through to the close. Presidential tweeting and denials will certainly not be of use for Trump, who will now need to engage in a salvage operation, the magnitude of which will depend on only what he knows and what Mueller may uncover in the weeks ahead.