Trump slams Fed, claims USD strength a ‘disadvantage’

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20 July 2018

thomasdodds

The US Dollar retreated from its highest level in trade weighted terms in a year on Thursday afternoon, following some typically forthright comments on the currency from President Donald Trump.

D
uring an interview with CNBC, Trump voiced his displeasure over the Federal Reserve policy, criticising the central bank for raising rates, even amid the country’s strong labour market and high inflation. The President cited the Chinese Yuan, which he claimed was ‘dropping like a rock’, and that a strong US Dollar was putting the country at a ‘disadvantage’. Unsurprisingly, the greenback fell relatively sharply following his remarks, around half a percent against the Euro.

Economic news out of the US were mostly positive yesterday. News out of the labour market were particularly encouraging, although gains that were eked out were quickly reversed following Trump’s comments. Initial claims for jobless benefits sank to just 207,000, its lowest level since 1969, a clear sign that the country’s jobs market is currently motoring ahead. There was also a pleasant upward surprise in the Philly Fed manufacturing survey, which jumped to 25.7 in July from 19.9.

Sterling recovers from lowest level in ten months

Sterling saw a fairly mixed session yesterday. The UK currency slipped back to another ten month low, following the disappointing retail sales figures, although retraced the majority of its losses against the US Dollar following Trump’s interview.

Public sector net borrowing figures out this morning, are unlikely to rock the boat and today could prove to be another day where Sterling is driven largely by external factors. Next week, investors will begin to focus on the next Bank of England meeting in the first week of August, which is shaping up to be a fairly significant risk event for the Pound.

European markets turn attention to ECB meeting

The Euro experienced a similarly volatile time on Thursday, jumping back above the 1.16 mark on the greenback following Trump’s comments. A report released from the IMF earlier calmed markets somewhat, suggesting that the UK’s exit from the EU would only likely cause a minimal impact on the Eurozone in the years following, even in the scenario of ‘no deal’.

Data out of the Euro-area was mostly second tier this morning, and thus largely ignored by currency markets. Investors are now already gearing up for Thursday’s meeting of the European Central Bank. With the major policy decision on the QE programme behind us, we think we’re unlikely to see any significant announcements that would warrant much scrutiny.