U.S. Dollar Rebounds after Trump’s Hawkish Comments

The U.S. Dollar rebounded against a basket of major currencies on Thursday. A number of factors contributed to the reversal to the upside. These included technically oversold conditions, hawkish comments from President Trump and profit-taking in the Euro after the release of the European Central Bank’s monetary policy statement.

March U.S. Dollar Index futures settled at 89.227, up 0.216 or +0.24%.

Comments from Treasury Secretary Steven Mnuchin once again fueled a rapid sell-off in the dollar. On Wednesday, Mnuchin triggered a steep break when he said that a weak dollar was good for U.S. trade. But when given the opportunity to clarify his comments at the World Economic Forum early Thursday, Mnuchin did not latch on to the strong U.S. dollar rhetoric used by past Treasury secretaries.

Mnuchin said during a CNBC-moderated panel that the dollar can fluctuate and he is not concerned by the current weakness, but “in the longer term” believes in the “strength of the dollar.”

Technical buyers reversed the index to the upside after it hit 88.225, slightly above the December 16, 2014 main bottom at 88.067. Oversold oscillators contributed to the reversal rally.

Comments from U.S. President Donald Trump helped turn the dollar around with hawkish comments, saying he wanted a “strong dollar”, contradicting earlier comments made by Treasury Secretary Steven Mnuchin.

Trump told CNBC in an interview in Davos, Switzerland, that he ultimately wants the dollar to be strong. This statement was enough to spook the short-sellers and encourage aggressive short-covering.

Trump’s comments also drove the Euro away from three-year highs and pulled the British Pound away from its strongest levels seen since June 2016.

Forex

The EUR/USD surged on Thursday to 1.2537, stopping short of its December 16, 2014 main top at 1.2569 and a major long-term Fibonacci level at 1.2597. The Euro rallied after European Central Bank President Mario Draghi said economic data pointed to “solid and broad” growth with inflation likely to rise in the medium term.

Draghi also warned that the surge in the Euro was a source of uncertainty and said the ECB might have to review strategy if U.S. comments on the benefits of a weak dollar lead to a change in monetary conditions.