Yesterday was very much a day of consolidation for currency markets ahead of increased event risk later on the week. Here in the UK the PM’s spokesman confirmed that at 12.30 BST tomorrow the Article 50 notification will be delivered to the EU as had been announced last week. PM May had a meeting with Scottish First Minister which seems to have done little more than solidify each party’s mutual loathing for the other.
A shift in focus
The shift in the Trump administration’s handling of its legislative agenda is the most important thing for the ongoing performance of the USD. Having huffed and puffed at the Republicans over the healthcare bill, we must think that the Dealmaker in Chief will now cosy up to Democrats on infrastructure spending and tax reform.
Originally infrastructure spending was likely to be held over until next year so as to give the Republican party a lift into next year’s Midterm elections but that is no longer the case. Democrats are unlikely to be as bellicose in their opposition to Trump in a bid to protect social programs that they hold dear and a politician voting against tax cuts in an election year would find themselves in trouble at the ballot box.
Once again, as we have stated since the election of Donald J Trump, doubts remain on the President’s desire for a fistfight on these issues and legislative pandemonium on tax promises that have held up the USD and equities until now are the last thing dollar bulls want.
Fed doves still talking up rate hikes
Dollar has also been stabilised by comments from two Fed members who spoke overnight. Chuck Evans was the most direct in saying “To the extent that I gain more confidence in the forecast I have, that would be a good indicator that I could perhaps support three (rate hikes in 2017). Two might be the right number if there’s a little bit more uncertainty. I still think that one of the larger uncertainties is whether or not inflation is going to get up to 2.0% sustainably in the US, and so I don’t want to get out ahead of these rate increases, but I thought that it was perfectly acceptable to get one in in March.”
Euro looking overbid
Although once again the data calendar is rather bereft of intrigue today we think that there is the possibility that the EUR starts to give up some of its recent gains. While data has been strong, technical indicators suggest that the single currency may have gone too high, too quickly for markets to be content with and a pull back for the euro would not at all surprise me.
The latest polling by France IPSOS from the French Presidential election (first round on April 24th and second round on May 7th) still sees Centrist candidate Macron defeating the Front National’s Le Pen in the second round by a margin of 62% to 38% but shows Le Pen shows winning the first round by 25% versus 24% for Macron.