USD Monthly Review May 2018

USD Monthly Review May 2018

April in review

Trump Foreign Policy Successes

  • Syria and North Korea raise risk appetite
  • Long-term yields reach 3%
  • Inflation remains benign
  • Dollar index above short-term resistance
Trump is writing his legacy

Despite his detractors’ opinions, there is no doubt that President Trump enjoyed major success in April. The pressure brought to bear on North Korea has seen Kim Jong-un suspend nuclear testing and the “surgical strike” on Syria’s alleged Chemical Weapons facilities have brought about a change in global risk appetite and provided a boost to the dollar.

Long-term yields rise

The yield on ten-year U.S. Government debt has risen to the psychologically significant 3% level for the first time in four years. The market’s concern over America’s trade and burgeoning budget deficit has led to higher rates.

Benign inflation provides FOMC with wiggle room

Jerome Powell, the new Chairman of the Federal Reserve, is the perfect man to take over in the current economic environment. His background determines that he can act in a reactive way to the economy without the need for further pre-emptive action as favoured by his predecessor. With CPI well below the level expected at this stage of the economic cycle, the FOMC can afford benign neglect.

Dollar recovering a little poise

The dollar index has rallied above its short-term resistance at 90.50 and looks set to move higher, although the Euro, which is the primary constituent of the index has strong support at 1.2160 which may halt the advance.

Employment report will set the tone for the economic

May what to watch

Wages Growth to spur FOMC

  • Employment report to provide a clue on FOMC
  • N. Korea summit announcement expected
  • Mnuchin to visit China?
  • Short-term dollar sentiment to remain positive
NFP likely to set the tone

As is generally the case, the employment report will set the tone for the economic performance of the dollar during the month. While the headline remains inconsistent, the rise in wage growth will have a significant effect on the prospect for future rate hikes.

Trump/Kim summit to be confirmed

Following Secretary of State nominee Mike Pompeo’s visit to Pyongyang, the date and venue for the Summit between President Trump and Kim Jong-un is likely to be announced. This will have a major effect on global risk appetite and a significant bearing on the Korean Peninsula.

Mnuchin to visit China

As well as the U.S./N. Korea summit, it is proposed that Treasury secretary Steve Mnuchin visits Beijing to discuss the trade agreement between the U.S. and China. This will be a significant step in relations between the two countries and will be a further boost to global risk appetite.

Dollar sentiment to remain positive

The dollar is benefitting from several positives, and that is set to remain giving the greenback momentum to post new 2018 highs in May. A weakening JPY, EUR and GBP should see the dollar index climb to test 92.20.

April 2018 : Key Events

  • ISM Manufacturing PMI
  • ADP Non-Farm Employment
  • FOMC Statement
  • ISM Non-Manufacturing PMI
  • Average Hourly Earnings m/m
  • Non-Farm Employment Change
  • Unemployment Rate
  • PPI m/m
  • CPI m/m
  • Retail Sales m/m
  • Empire State Manufacturing Index
  • Building Permits
  • Housing Starts
  • Philly Fed Manufacturing Index
  • FOMC Meeting Minutes
  • Durable Goods Orders m/m
  • CB Consumer Confidence
  • Prelim GDP q/q
  • ADP Non-Farm Employment