Dollar Recovers Awaits Trump First State of the Union

Dollar Regains Footing Ahead of State of the Union

The USD surged against all major pairs after having touched three year lows last week. US treasury yields rose with the 10 year yield touching 2.7 percent. President Trump will deliver his first state of the union address on Tuesday, January 30 at 9 pm EST. The Trump administration was behind most of the dollar weakness as comments from Secretary of the Treasury Steve Mnuchin triggered a sell off of the currency. President Trump’s first year has been characterized by political uncertainty even as markets continue a record run and the US economy continues to grow. He is expected to ask for unity as the senate and congress remain deeply divided ahead of the US primary elections in the fall.

  • US consumer confidence expected to have risen in January
  • BoE Governor Carney testifies before House of Lords
  • Trump said his State of the Union address will cover immigration and trade

USD Appreciated Against Majors on Busy Week

The EUR/USD lost 0.33 percent on Monday. The single currency is trading at 1.2388 after the US dollar bounced back from a terrible week. President Trump tried to clarify the comments from Mnuchin and stressed that the dollar should be strong as it is the reflection of a powerful economy. The comments were made during the World Economic Forum at Davos, Switzerland. Trump’s visit had been a question mark given the government shutdown the previous weekend, but the short shutdown allowed the President to attend and extend an olive branch. His America First was softened to First, but not alone, meaning America is open to negotiate. NAFTA and TPP negotiations notwithstanding the President was surprisingly open to new trading deals.

US President Trump will deliver its first Sate of the Union address on Tuesday, January 30, at 9:00 pm EST. Failing to avoid a government shutdown Trump will focus on the positives during his first year. His achievements in passing legislation came late in 2017 but he is sure to mention the tax reform bill. The stock market record breaking pace and overall strength of the economy while inherited will also be mentioned with the infrastructure plan something to look for in the immediate future. The USD got a Trump bump in late 2016 when just after winning the elections .

European bonds rose as the European Central Bank (ECB) gets closer to reducing stimulus with a possible rate hike in early 2019 or sooner. With more central banks shifting to a tighter monetary policy the pressure is on the Fed to keep ahead of the pack or else the USD will keep depreciating in 2018.

US jobs data will start pouring in on Wednesday with the ADP private payroll report and will close with The U.S. non farm payrolls (NFP) that will be published on Friday, February 2 at 8:30 am EST. Economists are expecting the US to add 184,000 positions in January. Last month’s report came in lower than expected but the saving grace for the USD was that hourly wages grew 0.3 percent as expected. There are similar gains forecasted for January wages with a special emphasis on inflationary data as the Fed ponders what to do with stagnant wages despite a strong job component.

The GBP/USD lost 0.64 percent in the last 24 hours. The currency pair is trading at 1.4072. The surge of the USD combined with political news out of the United Kingdom. Prime Minister Theresa May faces a tough three months ahead of local elections. Her decision to trigger a snap election ending up costing the party dearly and although the probability of a softer Brexit has risen and with it the pound, further uncertainty could trigger a sell off of the currency.

May did not have a great time at Davos and her speech felt flat and prompted new calls for her leadership to end. Europe has been firm on their view of Brexit but lately it has hinted that there are provisions for cancelling the divorce if both parties wish to do so. On the other side Chancellor of the Exchequer Philip Hammond called for a very modest Brexit which might have gone well with the Davos crowd, but are sure to draw heavy criticism amongst conservatives who voted to Leave the EU.

Market events to watch this week:

Tuesday, January 30
10:00am USD CB Consumer Confidence
10:30am GBP BOE Gov Carney Speaks
7:30pm AUD CPI q/q
9:00pm USD President Trump State of the Union
Wednesday, January 31
8:15am USD ADP Non-Farm Employment Change
8:30am CAD GDP m/m
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Statement
2:00pm USD Federal Funds Rate
Thursday, February 1
4:30am GBP Manufacturing PMI
10:00am USD ISM Manufacturing PMI
Friday, February 2
4:30am GBP Construction PMI

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza