US Dollar corrects as Trump becomes POTUS

23 January, 2017

Rob Bastin

Last week provided some key events for the markets to digest and with it came the expected volatility in exchange rates. Theresa May and Brexit took focus at the beginning of the week as the Prime Minister outlined her 12 point plan for negotiations, most notably prioritising control over our borders and immigration over access to the single market, while also confirming that the final plan will be put to the vote in parliament. The pound enjoyed its biggest daily gain against the Euro and USD in well over a decade, but unfortunately, these gains only recovered the losses from the previous week.

Friday was another significant day, not just for the markets but in history with the official inauguration of Donald Trump taking place late in the afternoon. Markets were on tender hooks waiting for the first speech from President Trump; such is the unpredictability of his behaviour. While awaiting his speech, there was one key data announcement for the UK in the morning session where analysts were expecting further buoyant Retails Sales figures for the month of December, with 7.2% growth forecasted annually. Actual results disappointed somewhat with annual growth at just 4.3%, a significant drop from previous figures due to a 1.9% contraction in December. Sterling fell off a little further from the recent spike, but traders were cautious to overcommit any positions ahead of the big event.

No-one knew what President Trump would focus on in his speech, and therefore what the potential risks were to currency fluctuations. Would he focus on dollar strengthening fiscal stimulus or take a weaker tone addressing trade restrictions and penalties? After a variety of expectations Trump’s first speech as POTUS delivered a simple patriotic message with an underlying emotion of anger, vowing to end the ‘American Carnage’ and give the power ‘back to the people’ and assuring that in every decision he makes, he will be putting ‘America first’. With no nasty surprises volatility remained low in the currency markets with the USD trading lower after the speech, continuing is softer performance seen throughout last week.

This week is one of the quieter weeks for data releases however key announcements are still on the calendar. Today will be focussed on Trumps recent comments with an absence of any other releases. However tomorrow we await the Supreme Court ruling on whether the UK government can invoke Article 50 without permission from parliament. The decision is likely to be the main event of the week for the UK and Sterling, with GDP figures on Thursday also of interest with a slowdown expected. For an overview of the rest of the week’s data releases see below:

UK – Supreme Court Ruling (time unknown)
9:00 am (Euro) – PMI figures
9:30 am (UK) – Public Sector Net Borrowing
2:45 pm (US) – Manufacturing PMI

12:30 am (AUS) – Consumer Price Index
9:45 pm (NZD) – Consumer price Index

9:30 am (UK) – Gross Domestic Product
2:45 pm (US) – Services PMI / New Home Sales

1:30 pm (US) – Gross Domestic Product / Durable Goods