Trumptrade effect waning

Struggle to pass Obamacare roll-back hurting dollar.

The dollar has fallen to four month lows against the Japanese Yen over the past few days as the President faces up to having to negotiate rather than dole out commands that are followed unquestioningly.

The concerns in Congress over the replacement of Obamacare are a prelude to what the President can expect going forward.

The pound and Euro have been “knocking against” long standing resistance against the dollar, which is suddenly on the back foot, at 1.2500 and 1.0800 respectively.

There are a several potential catalysts which may see those levels broken; today’s retail sales data, speeches from MPC and FOMC members, a shock in the French electioneering and, our “old friend”, Brexit.

The renewed resilience of the pound which was sold off on the news that Article 51 will be triggered next week could be short lived dependent on today’s retail sales data. Market analysts are predicting a 3.1% rise (YoY ex-fuel) but given the Producer Prices and Inflation data earlier in the week, the major risk is to the downside.

Fed Chair, Janet Yellen speaks later today (actually, she is making a speech as I assume she speaks most days!). With a reasonable distance to the next FOMC meeting, Yellen is likely to play the role of co-conspirator with the market, providing snippets of advance guidance but ultimately staying true to the “should the data permit” mantra.

Yellen’s speech will be preceded by MPC member Ben Broadbent who is likely to “tow the Governors line” on monetary policy. Anything more hawkish will attract buyers for the pound.

The MPC reminds me of the jury in the classic film Twelve Angry Men, as one dissenter goes about convincing the other jurors to think again. I trust we all know the outcome of the film!

With the triggering of Article 50 to come next week Broadbent is unlikely to move to far from the well-trod path.

Yesterday’s terrorist attack in London had only a brief effect with the pound soon correcting a 40-pip fall.

The Euro remains on a relatively narrow upwards trajectory against the ailing dollar but has lost ground to the pound over the past few days.

Despite short term moves caused by individual events such as data releases, political fears and terrorist threats, it is monetary policy and subsequent interest rate moves that drives longer term reaction

Of the major currencies; the U.S. is already raising rates, the U.K. is being threatened by the data no matter what the BoE Governor says, The Eurozone is still providing “extraordinary assistance and the wiss and Japanese are set in a low interest rate environment for the long haul.

One of the more counter-intuitive currency reactions involves the Japanese Yen. The Prime minister is implicated in a shady land deal and should this situation worsen the currency is likely to rise! Go figure!

The reason for this is that the Yen continues to be the go-to currency in times of uncertainty and a political crisis in Japan is just such an event.

The reserve Bank of New Zealand left rates unchanged overnight as the economy continues to react well to last year’s rate cut.