USD: President Trump address to Congress will be scrutinised closely – MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the US dollar is awaiting fresh direction in the near-term which could be provided by President Trump’s address to Congress.

Key Quotes

“The market is still waiting for further details of President Trump’s economic stimulus plans including looser regulation, comprehensive tax reform, and higher infrastructure investment. If President Trump fails to provide further reassuring details in the address, the market is likely to be left disappointed which at the very least could prompt the market to push back the timing of likely stimulus beyond this year. The lack of clarity over his stimulus plans was again evident late last week when Axios reported that Chief Economic Advisor Cohn told a group of executives at a private event in Washington that the White House does not support the border tax adjustment plan. However, later Axios stated that the White House called the website’s report inaccurate, and said that no statement of support or opposition was made.”

“There have also been reports in today’s FT that the Trump administration is exploring alternatives to taking trade disputes to the World Trade Organisation. Incoming officials have reportedly asked the US Trade Representative’s office to draft a list of the legal mechanisms that Washington could use to level trade sanctions unilaterally against China and other countries. It follows on from President Trump’s comments during campaigning that “the WTO is a disaster”. The ongoing shift towards more protectionist trade policies is continuing to act as a weight on the US dollar in the near-term. It supports that market’s scepticism that President Trump’s policies are more likely to lift inflation than growth. As a result US real yields are little changed since the election which helps to explain in part why the US dollar is only modestly higher on a trade-weighted basis.”