In Early Asian Trading Session, The Greenback Eased A Bit From Its Previous Gains As Investors Wait For The Upcoming Stimulus Speech From US President Trump.
The greenback steadied during the early trading in Asian markets as investors are anticipating US President Donald Trump’s upcoming policy speech later today.
The US dollar index opened higher from the previous session on Tuesday at 101.21 but started to ease down in Asian markets as the session went on and now trades at 101.13 (1545 UTC +8). The dollar index still exhibited modest gains within the day comparing to Monday’s low at 100.69.
Meanwhile, most Asian currencies continued trading higher against the greenback, which initially started from the start of 2017, after speculations over an uncertain Trump administration worried several investors over the value of the US dollar.
Dollar Status
The dollar traded lower against the Japanese yen at ¥112.46, while euro also gained against the greenback, trading at $1.0595.
Following Trump’s victory in the US presidential elections last November, DXY has since rallied to a 14-year high, with gains attributed by bullish investors over the possibility that Trump would reintroduce large fiscal stimulus and reflationary plans for the country.
After plunging from the end of January to as low as 99.43, DXY was able to rally against the basket of major currencies when February began and so far gained back around 2.78% month-to-date in the market. Within the month, the dollar index was able to reach a high of 101.72.
The dollar’s brief rally was attributed to Fed member Robert Kaplan’s comment that the central bank is likely to “raise rates sooner rather than later”, wherein the chances of the Fed’s rate hike increased by 33%. Greenback’s brief gains within the month ended on Tuesday as investors turned to a wait-and-see attitude over Trump’s Congressional address.
What To Expect From Trump’s Speech
Shin Kadota, a forex strategist at Barclays stated:
The talk regarding military and infrastructure spending raised expectations towards Trump’s speech to the Congress later today, shifting the dollar and Treasury yields. It remains to be seen how much the dollar can gain from Trump’s speech, as specifics regarding tax reforms, which is of key interest to the market, may not be available until March.
Global markets have been anticipating Trump’s upcoming Congressional address later in the day. Analysts expect Trump to highlight on his speech his first 40 days in office and what he has achieved so far. According to speculations, Trump is likely to set a more optimistic tone of speech this time, compared to his previous speeches made.
Meanwhile, Trump’s likely remarks regarding trade policy will be an important factor that investors will watch out for, especially for emerging Asian currencies. Should Trump impose border-adjusted tax reforms, this would have a negative impact for Asian markets in the future.
Tax reforms are also expected to be included in the speech, as Trump has exhibited a trait wherein he follows through with his campaign plans. During his campaign, Trump mentioned that he would replace the country’s current seven tax brackets with four, reduce business tax rate to 15%, and end delays for taxes on overseas corporate profits.
The repealing and replacement of the Obamacare is also likely to be brought up by Trump during his speech. However, since there is not yet a current immediate replacement for the healthcare plan, Republican might have a harder to remove Obamacare at once, as they yet have to agree on a new replacement plan.
Other major points expected to be brought up during Trump’s speech later in the day is matters regarding increased military spending, cuts to the EPA, State Department and other non-military agencies as well. It is not clear whether Trump would discuss his long feud with the mainstream media since his inauguration as US president. His lack of remark regarding this issue can indicate that Trump wants to shift the attention away from this issue for the meantime.
Conclusion
Dollar holders can wait for Trump’s congressional speech later in the day before making drastic moves regarding the greenback that they hold, in order to avoid large losses. Meanwhile, the Japanese yen and Euro seem to be performing better against the US dollar and can be considered as a safe haven should investors not agree with Trump’s speech.