US Dollar tumbles on Trump’s healthcare reform failure

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28 March 2017

Written by
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 slumped to its lowest level since November against its major peers on Monday, with investors growing increasingly concerned about Donald Trump’s ability to push through his fiscal stimulus plans this year.

T
rump’s failure to force his healthcare reform through the Republican controlled Congress last week has raised serious doubts over the President’s ability to move forward with his proposed tax cuts. Trump already faces fairly fierce opposition on the border tax issue within his own party and an inability to implement any fiscal stimulus at all in 2017 would be a major blow to US Dollar bulls. The prospect of lower taxes and higher spending in the US were one of the major driving factors behind the Dollar’s rally to a 14 year high around the turn of the year.

The Euro subsequently rose back above the 1.09 level against the Dollar for the first time in over four months yesterday. Monday’s better-than-expected confidence data out of Germany provided a boost to the common currency which extended its gains to over 3% for the month. In technical terms, the next major resistance level in EUR/USD is around the 1.10 level reached in the immediate aftermath of the US Election at the beginning of November. This suggests further short term gains could be on the cards for the currency.

Meanwhile, Sterling also broke out of last week’s range, soaring to its strongest position since the start of February on broad Dollar weakness. Investors now awaited any and all news on the terms of Britain’s exit deal with the European Union once Article 50 is formally triggered on Wednesday.

Barring the triggering of Article 50, news out of the major economies is fairly light this week. Speeches from a number of Federal Reserve members, including Chair Janet Yellen, will be in focus this afternoon.

Major currencies in detail

GBP

Sterling rose to an eight week high against the US Dollar as markets opened for the week on Monday, strengthening 0.3%.

The rally in the Pound yesterday was driven almost entirely by Dollar weakness, with no announcements whatsoever out of the UK. With the economic calendar essentially barren in the UK this week all attention will be on the triggering of Article 50 on Wednesday.

Sterling is likely to fall fairly quickly when the announcement is made, although it is likely to prove temporary as investors accept the inevitable and turn their attention to the terms of negotiations, rather than the triggering of Article 50 itself.

EUR

Concerns about Trump’s ability to push through with tax cuts this year sent the Euro 0.3% higher on Monday.

The latest German confidence surveys from IFO were very encouraging on Monday. Business sentiment in Europe’s largest economy increased to its highest level in nearly six years this month, with businesses seemingly brushing aside election uncertainty both domestically and abroad. The business climate index rose to 112.3 from an upwardly revised 111.1 in February, adding to the recent stream of better-than-expected economic news out of the currency bloc that has caused investors to re-evaluate the likelihood of higher interest rates in the Eurozone this year.

The next major set of data will be the Euro-wide inflation numbers on Friday. Opinion polls out of France ahead of the election could also prove significant.

USD

The US Dollar index slumped 0.2% on Monday to its lowest level since November.

Concerns about Trump’s proposed tax reforms dominated trading on Monday with no other significant news or data releases leading to an otherwise quiet session. Last week’s fairly dovish comments from Fed member Kashkari, the sole dissenter for higher rates in March, also kept the Dollar on the back foot yesterday.

FOMC members Yellen, George, Kaplan and Powell will all be speaking in the US this afternoon. Yellen will be speaking in Washington just before 6pm, although is not expected to touch on monetary policy.

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