Trump Jr tweets the latest hurdle for USD
It is the nature of the current politics that it can barge into a trading day and start upsetting the apple cart almost without warning. Yesterday’s tweet from the President’s son will go down as one of the stranger political interventions of all time and while lawmakers and Congress are waiting for the dust to settle, investors made sure to express their dismay by selling stocks, the USD and buying US debt.
How negative for the USD this is in the longer term we will have to wait and see but the Trump Presidency has demonstrated Teflon like qualities so far. The Trump brand is damaged, the White House brand is damaged but until the Republican Party believes that the battle is lost then impeachment proceedings are unlikely to be taken further than Twitter and the comment pages of newspapers.
Yellen to testify on US economy
We will wait to see how the dollar forms up ahead of the testimony of Janet Yellen later today in her semi-annual appearance in front of the Senate with a similar outing in front of the House of Representatives tomorrow. Fed Governor Lael Brainard spoke yesterday and did little to sway expectations from the consensus view of careful on the timing of the next few hikes whilst believing that the Federal Reserve should start to reduce its $4.5trn balance sheet.
Yellen speaks at 3pm London time and we expect that wages, inflation and the run-off of balance sheet spending will dominate.
Wages crucial for sterling and rate expectations
Before that, and certainly more importantly for the pound, is the latest look at the UK jobs market. Once again the focus does not fall on how many people are in work and what will likely be record levels of employment but instead on wages and should pay packets including bonuses fall to the consensus number of 1.8% as expected then CPI as it stands – last month’s number was 2.9% – is running 60% hotter than the improvements to what people take home on the month.
Bank of England Deputy Governor Broadbent said yesterday that “it is a bit tricky at the moment to make a decision to raise rates. I am not ready to do it yet” and we would surmise that a lot of the prevarication obviously stems as much from the weakness in wages and pay as the uncertainty of the UK’s negotiation positon within Brexit.
China to widen the yuan band?
The Financial News, a newspaper run by the People’s Bank of China, said that an improved currency market requires more players, additional trading tools, and diversified transaction methods, including widening the yuan’s trading band and reducing state intervention in the currency. Currently the yuan trades within a range of 2% from its fix by the central bank and while a wider band may help things it will unlikely be by much; the yuan typically stays within 0.5% of it starting price on the session. USD/CNY has fallen to 6.7812 at the time of writing.
Oh Canada?
Central bank watchers have the Bank of Canada to be happy with today as, for once, we could and probably will see an increase in interest rates. Given recent growth dynamics this may be warranted but we remain cautious as to whether this constitutes the beginning of a trend.