Trump Tax Rhetoric boosts dollar
February 10th: Highlights
- Ambitious U.S. tax reforms coming
- Trump to meet Abe
- Reforms to MPC as Hawk Forbes departs
Trump promises tax plans in next few weeks
In order to avoid being seen as the Wizard of Oz, Trump is going to have to start work soon. Stop telling us what he is going to do as if campaigning for office and start implementing policies now as there is a real danger that his first 100 days will be characterised by smoke and mirrors with nothing of substance actually achieved.
It is perhaps a testimony to the psyche of FX traders that they are prepared take Trumps continued rhetoric as an indicator for market actions where more concrete drivers of economic activity are (relatively) ignored.
Today, President Trump meets Japanese Prime Minister Shinzo, starting a two day summit. There will be a press conference later, but similar to the recent meeting with Theresa May, the real conversations will take place in private. Trump is expected to praise Japan as the U.S, major ally in the Pacific but it is doubtful he will reiterate his attack on Japan as a potential currency manipulator. In fact, he could show sympathy for the issues they face in their economy.
MPC shakeup ses Hawk depart.
Perhaps the more significant move is the departure of Kristin Forbes at the end of her two year stint, which will be at the end of June. Ms. Forbes has been in the press recently, openly questioning the wait and see policy being adopted by the bank in the face of rising inflation. She has been the most sceptical of the MPC’s nine committee members about the need to pump more stimulus in Britain’s economy after it withstood last year’s Brexit vote better than expected. This week she called for last years rate cut to be reversed “sooner rather than later”.
Mark Carney has been criticised in some quarters for his willingness to give the markets “forward guidance” on interest rate policy, in much the same way as Yellen does in the U.S. It seems that economists prefer to second guess Central bankers rather than be told what is on their minds. Commentators on the other hand prefer to be told and then interpret is said.
Today sees the release of industrial and manufacturing date for January in the U.K. Expectation is for a fall in production month on month although year on year data should show a healthy increase on the previous reading. This data will be an early indicator of how the “wholesale” economy is faring. Lower rates should be encouraging investment and a weaker pound promoting exports. Sterling has more downside risk (more likely to react badly to a poor number than it is to rally on better than expected data), given that the Bank of England is already painting an optimistic view of the economy.
The U.K. is starting to face headwinds to its economy from a number of directions and the ability of the Bank of England to continue to reflect Government policy in its own actions will be sorely tested. Economists and market commentators continue to acknowledge the possibility of a further fall in the pound to the 1.20 area against the dollar but for now are prepared to be comforted by supportive data releases.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”