Donald Trump’s tax plan hint sends US Dollar higher

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10 February 2017

thomasdodds

The USD rose against its major peers on Thursday after Trump announced he would, in the next few weeks, be releasing a “phenomenal” tax plan in the US.

T
he greenback appreciated by over 6% in the immediate aftermath of the Presidential Election in November, with investors piling into the currency in anticipation of increased spending and widespread tax cuts under the Trump administration. Traders have, however, so far been left disappointed by Trump’s lack of clarity over future fiscal policy plans, with the Dollar retracing around half of its advances since November.

Gains for the Dollar were tempered yesterday by some fairly dovish comments from Federal Reserve member and President of the St.Louis Fed James Bullard. Bullard claimed that interest rates in the US could remain low throughout 2017, with no clear indication as to whether Donald Trump’s fiscal policies will lead to either higher inflation or growth in the country.

Sterling rallied back above the 1.25 level against the US Dollar on Thursday despite the release of a Bank of England survey that indicated employers in the UK this year plan to offer the least generous pay deals in five years.

Industrial and manufacturing production data out of the UK this morning could shift the Pound today. Output is expected to have accelerated in both sectors in December, which would bode well for fourth quarter GDP data to be released in a couple of weeks.

Major currencies in detail

GBP

The Pound appreciated 0.2% against the US Dollar on Thursday, despite Theresa May reiterating her desire to trigger formal EU exit talks before the end of next month.

Following Wednesday evening’s Parliamentary vote, the EU bill will now pass onto the House of Lords. The Government is likely to face slightly firmer opposition at this stage, given it fails to hold a majority in the upper chamber. Some members have already voiced confidence that they can force changes to the bill, although it is widely expected to be passed before Theresa May’s meeting with EU leaders on 9 March. Any amendments made by the House of Lords would send the bill back into the Commons, possibly delaying May’s exit timetable and likely providing some short term relief for Sterling.

The monthly GDP estimate from NIESR will be released this afternoon. Investors will have one eye on a host of economic releases next week including the latest labour and inflation data.

EUR

The single currency traded within a narrow band on Thursday, ending just 0.1% lower off the back of limited economic news out of the Euro-area.

Germany’s trade surplus rose to its highest level on record in 2016, according to data released yesterday. The balance of trade increased to €252.9 billion last years off the back of a 1.2% increase in exports and just 0.6% decline in imports. This widening of the surplus could potentially increase tensions between Washington and Berlin over trade relations, given the Trump administration has recently claimed Germany was taking advantage of the “grossly undervalued” Euro.

With no major economic releases in the Eurozone today, the Euro is likely to be driven by events elsewhere.

USD

Donald Trump’s comments on his forthcoming tax plans sent the Dollar 0.2% higher against its major peers on Thursday.

Initial jobless claims surprised to the upside yesterday, with claims for last week falling to just shy of their lowest level in over 40 years. Claims declined sharply to just 234,000 from 246,000, only 1K above the recent 43 year low set back in November. Sluggish wage growth and the recent increase in unemployment rate likely mean that the Fed will hold rates steady in March. We think the overall improvement in labour market conditions means it remains on the table.

Import and export prices this afternoon will be the only significant economic announcements in the US today. Attention will turn to next week’s inflation data.