US$ Recovers but Faces Political Risks

USD

The U.S. dollar is mostly stronger this morning, except against the British pound, rebounding from yesterday’s losses. The greenback has been under pressure over the last 10 days as Trump and his administration officials appear to be trying to talk down the dollar’s strength. Peter Navarro, the head of the White House National Trade Council accused Japan, China and Germany of benefiting from a weak currency. The German Chancellor and the Japanese Prime ministers both quickly rejected the Trump administration’s assertions. Nevertheless, currency analysts find themselves in unfamiliar territory as the greenback has long been (mostly) free from attempted manipulation by government officials. We must be prudent as the fate of the dollar could hinge on comments or tweets from the new President. Volatility is highly likely.

From a fundamental standpoint, the greenback should receive additional reprieve this morning. According to ADP, private payrolls expanded at a faster pace than expected in January. Companies added 246K jobs, beating expectations of 168K.

At 2pm this afternoon, the Federal Reserve will announce their policy decision. Only one out of 94 economists polled, expect the central bank to raise interest rates. Therefore, market participants will comb the statement’s language for cues on future policy. There is no press conference following the meeting today.

 

GBP

The British pound bucked the trend of wide-spread US dollar strength, and gained overnight after falling during yesterday’s session. Fundamental data was mixed. The Markit Purchasing Managers Index showed a sharp jump higher, benefiting the sterling. But the move was dulled somewhat as a deeper look at the numbers showed the largest month on month increase in input costs in nearly three decades.

Traders will quickly reset and look forward to tomorrow’s Bank of England meeting. A change to policy is highly unlikely but analysts will look to the central bank’s revisions to its inflation outlook.

 

EUR

After rallying to its highest level since November yesterday, the Euro has sold-off in the overnight session. The Euro jumped yesterday after the Trump administration accused Germany and others of benefitting from a weak euro. European officials have pushed back against the idea of manipulation, highlighting the fact that the exchange rate falls under the purview of the ECB.

German and French PMI data were revised upwards from last month, limiting the Euro’s retracement.