Will the ties with the UK replace TPP?

27 January, 2017

After long resistance, the US currency eventually renewed lows, as the Dollar index decreased to the level of 99.80 during the Asian Session on Thursday. It is obvious that the Asian investors are persistently trying to send the Dollar into deep selloff, playing on the heightened political risks related to the significant changes brought forward by president Trump in US foreign policy. Acute tension with China and the threat of a trade war between the two countries, a bill to retreat from the leadership of the UN (which the country reserved under Roosevelt administration during Bretton-Woods conference), quitting several trade partnerships, including TPP – all of this plays the role of the US Dollar, as a global trading currency.

In contrast to the currency market, the stocks and bonds in the US are gaining confidence betting on the accelerating economic pickup in the US during Trumps´ administration. DOW index cut through the important psychologic milestone by 20,000 points, as investors trimmed down their positions in bonds expecting faster hikes in 2017. Yields on government debt continue to look upside.

During the European session, Dollar index pared decrease rising by 0.31%, as some investors still retain faith in the rally. However, taking into account the currency trading at multi-year peaks and increasing political uncertainty, then medium-term selling looks like quite a tempting option. Investors will probably support the currency at the current neutral levels till the GDP data release on Friday of the 4th quarter, of which deviations from the forecast will lead the path for the Dollar.

The sharp advance of the UK sterling played not less of a role in the Dollar’s decline. The steep upturn in the currency is connected to the meeting of the UK Prime Minister Theresa May and Donald Trump on Friday with renovated trading relationships on the agenda. As the Brexit concerns were primarily connected to losing access to the EU tax-free market, acquiring primary trading partner across the pond will certainly relieve pessimistic outlooks of the Pound. For Trump, strengthening ties with the UK will replace TPP, which plan he already.

The Pound ran out of steam to extend the advanced-on Thursday with a sessions peak seen at 1.2670 level. Such steep advance embarrassed the bears camp, meanwhile ensuring less resistance for bulls during a further rally. It is recommended to take buy positions on Pound from 1.2600-1.2580 levels with a target at the 1.2700 level.

Among precious metals, Dollar and Silver posted declines as investors shift their attention to the US and EU stocks trying the gauge the room for possible growth. European currency and Yen got most intraday damage from the Dollar correction, falling 0.24% and 0.75% respectively.


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