Trump’s Dollar

What a difference a day makes…

Equity markets are on the bounce and the Dollar is standing its ground for a 2^nd consecutive day, the Dollar Spot Index having ended the day with a 0.55% gain on Tuesday.

The markets looked to have given Trump a 2^nd chance following the failure to deliver on the Healthcare Bill, though if there is any hint of tax reforms having the same fate, the markets are unlikely to be as forgiving.

It was always going to be about how the administration handled the failure and the lack of rhetoric and intent to just move forward certainly limited the Monday sell-off, allowing the markets to brush off the negative sentiment.

U.S consumer confidence figures hitting a 16-year high was certainly a boost for the markets, with the weaker Dollar contributing to a narrowing in the U.S goods trade deficit, but as we have seen in recent weeks, direction for the Dollar and U.S equities is now more influenced by the U.S administration than by the FED.

FOMC members have been on the more hawkish side this week, but the commentary continues to be ignored by the markets with it being too soon after the March interest rate hike to begin considering whether a 4^th rate hike is a realistic possibility.

Trump and the team will need to deliver on tax reforms for the Dollar to see a material bounce, the markets expecting a fiscal stimulus package to follow on from tax reforms.

With the economic calendar on the quieter side for the day ahead, material stats limited U.S February pending home sales, we can expect the Dollar to remain on the front foot through the European and U.S session, with little to cause the markets to panic and pull out of the Dollar.

Things are a little different across the pond with the pound on the back foot, down 0.35% at $1.2407 at the time of the report, the decline coming off the back of Tuesday’s 0.87% slide attributed not just to a stronger Dollar, but the British government’s signing of Article 50 on Tuesday.

A lack of material stats out of the UK until Friday will leave the pound exposed, though the uncertainty will likely lead to the markets buying on the dips, the pound having managed to recover from an intraday low of $1.2377 hit early in the Asian session.

At the time of the report, the Dollar Spot Index stands at 99.915, a gain of 0.20%, with the index likely to recover to 100 levels before the end of the day, supported by the shift in sentiment towards a fiscal stimulus package, rising oil prices and that’s before considering what such a surge in consumer confidence means for household consumption and the U.S economy in the months ahead.

One thing is for certain, the Dollar no longer belongs to the FED and sits comfortably in Trump’s pocket, the U.S administration clearly pulling the strings for now, which is likely to be exactly what Trump had wanted from day one. If the FED wants to take back the reigns, it’s going to have to get a lot more hawkish…