US Dollar slides after Trump criticises Federal Reserve policy

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21 August 2018

thomasdodds

The US Dollar was broadly weaker against its major peers this morning after comments aimed at the Federal Reserve from US President Trump.

S
peaking at a Hampton’s fundraiser this weekend, Trump once again reportedly criticised the Fed’s recent monetary policy decisions, saying that he was ‘not thrilled’ with Chair Jerome Powell for raising interest rates in the US. This outburst marks the second occasion that the President has slammed the central bank for tightening monetary policy. While the bank is intended to be independent, a signal from the Fed of a slower pace of hikes at its next meeting would be seen as a clear concession to Trump, and his opposition of higher interest rates and a stronger US Dollar.

With no real economic data releases of note out of the US today, attention will turn to Wednesday’s FOMC minutes. We expect another hawkish signal that would leave the door firmly open to two more interest rate hikes this year. The Jackson Hole symposium later in the week may take on more importance, with Chair Powell to speak alongside a number of other central bank heads.

Foreign minister Hunt talks up Brexit deal chances

Sterling clawed back some ground against the greenback, largely due to weakness in the latter. The UK currency edged above the 1.28 mark this morning, back to around its strongest position in a little over ten days.

Comments from foreign minister Jeremy Hunt may provide further buying pressure today. Hunt this morning claimed that the chances of a no Brexit deal were not negligible, although he was cautiously optimistic that a deal would be struck. We don’t envisage any news of a breakthrough in negotiations for the time being and, as such, more short term weakness could be on the cards for the Pound as investors perceive the lack of positive developments as negative for the currency.

Common currency rallies back above 1.15 mark

Activity in the Eurozone is slow to get going this week and we’ll have to wait until Thursday morning’s PMI data for the first real economic data release of note. The Euro did, however, start the week well, rallying back above the 1.15 level this morning on short US Dollar selling and a decline in Italian bond yields which was steadily increasing for the past two months. It is interesting to note that currency traders were net short on the common currency last week for the first time in over a year, suggesting that further losses for the Euro could be on the cards.