It’s all about the dollar this morning.
The long USD trade was already in question as the market begins to fade the reflation trade, but new comments from Trump published late on Monday night in the Wall Street Journal threw the dollar for a loop in the overnight session.
As you weigh the … well… “weight” of Trump’s “too strong” tape bomb, consider the broader context as described earlier today by SocGen…
It has been a bad start to the day and year for the dollar. The correction in relative real yields continues and is dragging the dollar lower. Charts of EUR/USD and USD/JPY against relative real yields suggest that there’s nothing to get bullish about in la-la dollar-land, at the same time as there’s a real dearth of significant news.
It evokes memories of a year ago when the market got bullish dollar after the first Fed hike of the cycle, but the dollar subsequently traded lower into May after global market turbulence early in the year cut off Fed rate expectations at the knees. This time it is the lack of details on US fiscal stimulus that has sapped dollar momentum. We have entered a wait-and-see period until the fiscal picture becomes clearer.
Also, the market euphoria that followed Trump’s election win has been tempered since by a growing realisation that his presidency could usher in radical realignments in global economics and politics, not all of which are necessarily market-friendly. Thus, more uncertainty.