The Greenback one big loser last week as dovish statements from Mnuchin, weak U.S. data, and global trade protectionism concerns all contributed to a bearish run for the currency.
Trump’s first address (Jan. 31, 2:00 PM GMT)
Can you believe Donald Trump has been U.S. President for a year now? The POTUS will celebrate by giving his first ever State of the Nation address on Wednesday.
The Donald will likely pat himself on the back for progress on the financial markets, employment (watch out, Jay-Z!), and tax reform as well as highlight challenges to achieving his other campaign promises like infrastructure, repealing Obamacare, and building the wall.
What you’ll want to keep your eyes on are tidbits about market-moving concerns such as his stance on trade negotiations with major trading partners and geopolitical conflicts with other players (read: Rocket Man). Aggressive statements will likely spook the markets while highlights on progress could inspire a bit of risk appetite.
FOMC statement (Jan. 31, 7:00 PM GMT)
Just hours after Trump’s speech, the Fed will publish its monetary policies for the month of January.
No one is expecting any bombshell from the central bank especially since there’s nothing special about the release (not even a presser!) other than it’s Janet Yellen’s last meeting as Fed Chairman. Still, make sure you stick around in case Fed members provide clues on their schedule and/or expectations for the year ahead!
NFP week reports
What’s the start of the month without the monster NFP report, amirite?
The slew of labor-related reports will start on Wednesday at 1:15 PM GMT with the ADP report followed by the quarterly employment cost index at 1:30 pm GMT.
Thursday will bring us the Challenger job cuts report, preliminary quarterly non-farm productivity and unit labor costs as well as the weekly unemployment claims. On Friday when we get to see the NFP report, Uncle Sam’s unemployment rate, and average hourly earnings.
Market players are generally expecting stronger numbers from last month but, unless we see significant upside or downside surprises, this week’s data will unlikely change the Fed’s bias to raise its rates at least three times in 2018.
Last Week’s Price Review
The Greenback’s losing streak ain’t over yet! In fact, the Greenback is the worst-performing currency of the week (as of 6pm GMT).
The main catalyst being cited by most analysts as the reason for the Greenback’s slump this week is U.S. Treasury Secretary Steven Mnuchin’s Wednesday comment that (emphasis mine):
“The dollar is one of the most liquid markets. Where it is in the short term is not a concern for us at all. A weaker dollar is good for us as it relates to trade and opportunities. Longer term, the strength of the dollar is a reflection of the strength of the US economy and that it is, and will continue to be the primary reserve currency.”
But as you can clearly see in the overlay of USD pairs, the Greenback began to tilt to the broadly to the downside during Tuesday’s U.S. session. So, what happened back then?
Well, there wasn’t really much in terms of negative catalysts. The Richmond’s Fed’s manufacturing index was worse-than-expected (14 vs. 19 expected, 20 previous), but that report is only mid-tier and best and unlikely to have kicked the Greenback lower. Moreover, the Greenback was already sliding lower about two hours before that report was released.
However, some market analysts think that the Greenback’s slide was due to worries related to U.S. and global trade after Trump announced tariffs on solar panels and washing machines, which caused China to respond with a warning that the U.S. is making the global trade environment worse for everyone.
Basically, these analysts think that there was speculation that the U.S. will have trade wars with China and other countries affected by Trump’s tariffs, such as South Korea. And apparently, the market think that the U.S. would be on the losing end.
Anyhow, the Greenback did find some respite later when Trump said in a CNBC interview that:
“The dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar.”
“Our country is becoming so economically strong again and strong in other ways, too.”
Sadly for Greenback bulls, Trump’s words were only a speed bump for the bears since bearish pressure on the Greenback returned when Friday’s Asian session rolled around.
As to what caused the Greenback to resume its slide, there weren’t really any catalysts and market analysts only stated the obvious when they noted that the Greenback’s Trump-driven recovery was losing steam. The Greenback’s price action did become a bit more mixed later, though.