Trump Troubles Push Dollar Lower
May 18th: Highlights
- Justice Department starts investigation
- Political instability leading to major reversal of risk appetite
- Euro breaks major resistance levels
Knives out as Trump fights to survive
There is so much political intrigue playing out in Washington right now that it is almost a relief when a day goes by without a new revelation.
The fallout from Trump’s sacking of FBI Director James Comey is having far reaching consequences for the Presidency. It is impossible to say where this will end but whatever happens any major policy initiatives will be placed on hold.
The strength seen in the dollar since the election has now evaporated and the “Trump trade” is almost a negative. The dollar index has shed 2.2% this week alone and is now trading at a level lower than when Trump was elected. Traders are comforted by political stability so the current turmoil is a major negative.
The U.S. Justice department isn’t known for it sense of irony but is has appointed a former FBI Head to run an investigation into Trumps campaign and collusion of his staff with Russia. There is no telling how far this will go or where it will end but impeachment is a possibility if further evidence of interference is found.
Euro Flying as economy stabilizes
It has been a long haul for the ECB and no criticism should be heard if they are slow to remove the props holding the economy upright.
At the start of the year the significant issues facing the single currency were political. The Dutch and French elections have passed with Brussels not only unscathed but positively reinforced by victories for Mark Rutte and Emmanuel Macron. The single remaining issue now is whether Macron can win a majority at next month’s general election.
The Euro has gained strength from the renewed political background trading at a six-month high, reaching 1.1175. It is now supported at 1.1125/30, so a consolidation is likely before a test of the 2016 high of 1.1615 can be considered.
The single currency is making less of a mark against Sterling. The pound has managed to hold below 0.8600 as the political stability of a huge Government majority provides a basis for Brexit negotiations.
Following the release of the Labour Party manifesto which lurched alarmingly to the left, the Conservatives plans seems almost centrist by comparison. The age-old battle lines are now drawn. Just three weeks to go before the election is out of the way and traders can start to worry about the effect of a non-existent opposition on a Government with a mandate to act as it wishes.
Sterling is looking likely to push on through the 1.3000 level against the dollar. A level which has proved difficult to attain despite several attempts.
U.K. data a concern for consumers
Yesterday’s release of employment data for April showed that the employment rate remains well below 5%. There is scepticism, almost disbelief surrounding the constituent parts of the employment report but one undeniable factor is growth in hourly earnings. This has been sluggish, bordering on stagnant, so far this year.
Yesterday’s report showed that hourly earnings grew by just 2.1% in April. That is just half the rate of growth seen before the 2008 crisis. Following the inflation report from the previous day which showed consumer prices had grown by 2.8% in April wages in the U.K. are now actually falling in real terms.
Since the consumer has been the mainstay of economic activity this will be a blow to the prospects for growth going forward. It explains both the cut in the growth forecast this year and the Bank of England’s reluctance to contemplate a rate hike to combat inflation.
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.”