Trump vs Yellen & Draghi vs Weidmann

19 January, 2017

The U.S. dollar has been on a roller-coaster this week. After dropping by more than 1% on Tuesday the dollar index recovered 0.9% from its lows. The steep drop in the currency came after comments from Donald Trump suggesting that the dollar is too strong, and this led some traders to believe the recent rally could have come to an end, but comments from Fed Chair Janet Yellen on Wednesday brought back hopes to the bulls.

Ms. Yellen did not specify the timeline or the pace of projected interest rates hikes, but she indicated the Fed will raise rates few times a year until 2019 and warned of a nasty surprise if the central refrained from acting. Although there’s no precise definition of “few” but reasonably means two to three times a year, which leave many central banks behind.  

Recent economic data supports Yellen’s views as inflation rose in 2016 at fastest pace in five years. U.S. CPI jumped 0.3% in December to breach the 2% benchmark, and if oil prices held above $50 the trend is not likely to reverse. This leaves only the Fed's preferred gauges of inflation, the PCE and Core PCE Price Index below 2%. However, there is a high risk of these indices overshooting the Fed’s target if fiscal policies came into play and the Fed will be left with little options but to fasten the pace of monetary policy tightening, thus keep supporting the dollar.

On the shorter run, Trump will remain the center focus for traders and his inauguration on Friday will play a major role in the dollar’s direction. It’s highly unlikely to reiterate that the strong dollar is hurting the economy, but if his speech contains more of protectionist policies than stimulus measures, it could harm the dollar, at least in short term.

The European Central Bank is meeting today and most likely keep monetary policy unchanged after the central bank extended and reduced the monthly bond purchases to €60 from €80 in their last meeting. Although it might be considered a non-event, we’ll be carefully listening to Draghi to see if the recent improvement in Eurozone data especially when it comes to inflation, will force the ECB to start considering unwinding their QE policies.

PMI’s across the Eurozone reached 5.5 years high in December and inflation climbed to 1.12, the highest since August 2013. Meanwhile German inflation jumped to 1.7%, thanks to higher oil prices. This will undoubtedly create a battle between Bundesbank's Weidmann and Draghi on when to end the loose monetary policy. Of course, Mr. Draghi has his reasons, especially that political risks will intensify in the next couple of months with presidential elections in France, Germany and Netherland’s, but once we’re over it, I believe the ECB will start ending their untraditional QE policies. This suggests the Euro is likely to remain under pressure until probably mid-2017. 


Source link  
Yuan approaches critical level

The trading week kicked off with a panicked sell-off in Chinese equities which simply expresses growing fears in financial markets. Rising U.S...

Gold shines on Italy turmoil

Gold is poised to remain in the limelight this week after aggressively appreciating roughly $18 in a three-hour window. The yellow metal surprised markets...

Fed hike failed to satisfy dollar bulls

Despite U.S. President Donald Trump's dissatisfaction with the Fed's monetary policy tightening measures, the Fed as expected raised interest...


Trump makes mark at United Nations

Although a variety of headlines are circulating following the speech from President Trump at the United Nations, financial market movements are slightly...

Dollar path hinges on Fed dot plot

The U.S. Dollar has enjoyed a robust rally over the past seven months. An economy growing above potential rate, fiscal stimulus, low unemployment...

Risk aversion returns as tariffs take effect

Politics and trade tensions are expected to be the key market drivers this week. President Trump's tariffs on $200 billion worth of Chinese goods...


Investors await China's response

U.S. President Trump moved forward with imposing 10% tariffs on $200 billion of Chinese imports effective next week. Trump's move has obviously...

EM Currencies slide as Dollar appreciates

Emerging market currencies have been treated without mercy by a broadly stronger Dollar, yet again. The Dollar Index appreciated to its highest level this year...

Pound crumbles as UK inflation fails to rise

Repeated signs of easing inflationary pressures in the United Kingdom could plant a seed of doubt among investors about whether the Bank...


In the past 24 hours Bitcoin has lost -0.93% and reached $6547.603597. Open your trading account with the best cryptocurrency brokers on special terms today.

In the past 7 days the EUR/USD pair has gained 0.6352% and is now at $1.1587. Start trading and making money on Forex today.

In the past 7 days Ethereum has lost -8.23% and is now at $207.223588182. Have the most popular cryptocurrencies compared online 24/7.


Top Brokers offering Daily Forex Market Reviews


Forex Currencies Forecasts


Top 10 Forex Brokers 2018

# Broker Review
1easyMarketseasyMarkets91%
2FXTMFXTM88%
3HYCMHYCM87%
4Alfa-ForexAlfa-Forex86%
5FxProFxPro85%
6FIBO GroupFIBO Group84%
7OctaFXOctaFX83%
8HotForexHotForex82%
9FXCMFXCM80%
10AvaTradeAvaTrade77%
  


Share: