Dollar retreats from six week high on Trump tariff announcement

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2 March 2018

Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The US Dollar briefly touched its strongest position against the Euro in six weeks on Thursday, although fell sharply after London close against its European counterpart.

esterday evening’s sharp sell-off in the Dollar, which saw it give back over half a percent from Thursday’s high, followed Donald Trump’s decision to impose tariffs on steel and aluminium into the US, igniting concerns that this could have a negative impact on the world’s largest economy. The US Dollar had earlier touched its strongest position since mid-January off the back of some strong domestic economic data and hawkish comments from the Chair of the Federal Reserve.

Recently appointed Fed Chair Jerome Powell made his second public appearance of the week yesterday as he continued to testify before Congress as part of the semi-annual monetary policy report. Powell continued to strike a generally optimistic tone over the health of the US economy. He said that there was no evidence the economy was overheating and that even with unemployment at its lowest level in 16 years, labour markets in the country still have room to improve as the central bank gradually raises interest rates.

On the subject of the pace of interest rate increases in the US this year, Powell added ‘the thing we don’t want to have happen is to get behind the curve’. It is clearer now more than ever that Powell and his colleagues on the FOMC are in no mood to ease back on the pace of hikes this year. Markets are coming around to the idea that we could see the Fed funds rate increased on as many as four occasions in 2018.

Economic data out of the US was also encouraging on Thursday. ISM’s manufacturing PMI jumped to 60.8 in February, much higher than the 58.7 pencilled in, while US jobless claims sank sharply to their lowest level in almost 50 years.

Sterling braces for Theresa May keynote Brexit speech

Sterling was stuck just below the 1.38 mark against the US Dollar yesterday, following a fairly violent sell-off the day previous on renewed Brexit concerns. Currency traders mostly overlooked yesterday morning’s solid manufacturing PMI in the UK which came in at 55.2 in February versus the 55.0 consensus as they looked to events on Friday.

Today bodes to be a particularly eventful day of trading for the Pound. Governor of the Bank of England Mark Carney could touch on monetary policy when he makes a speech at the inaugural Scottish Economic Conference at 10:0 UK time. Theresa May will also be delivering a crucial keynote speech on Brexit today. Investors will be watching closely for her comments on how she intends to avoid a hard Irish border post-Brexit.

With little economic news to go off in the Eurozone, the Euro is likely to end the week driven mostly by events elsewhere. Yesterday’s manufacturing PMI was mostly overlooked, despite signs of a modest upswing. We now look ahead to today’s Eurozone producer price index release at 10:00 UK time.