President Trump’s comments to the Davos WEF yesterday contained much of the same as his recent pronouncements—tax cuts, lower oil prices and a demand that interest rates drop ‘immediately’. Tariffs got some airtime, but the lack of specifics remains a hindrance on the US Dollar’s (USD) performance, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
USD slides as President Trump soft pedals China tariffs
“In addition, the president commented last night that he’d ‘rather not’ have to impose tariffs on China—prompting a further slide in the USD. Markets have been holding significant long USD positions and the USD’s run up around the presidential election was due in some significant part to the expectation that broad and aggressive tariff action would be slapped on the US’ main trading partners from day one. The more nuanced approach to tariffs is prompting a shake out of positioning—and there may be more to come.”
“The major currencies are showing broad gains on the USD today and the DXY is showing a 1.6% loss on the week, its biggest fall since a similar decline in late August. Technical pointers are leaning bearish for the DXY, suggesting the index could ease another 1% or so in the short run. The SEK, ZAR and MXN are leading gains on the day, with the EUR also notching up a solid rise, with the help of Eurozone data.”
“Havens like the CHF and JPY are lagging, with the Japanese currency more or less flat on the session despite the BoJ delivering the expected 25bps rate hike earlier (to 0.5%, the highest since 2008). The BoJ upgraded its view on the strength of inflation, keeping the door open to more tightening down the road. Before the decision, Japan reported higher than expected CPI for December (+3.6% Y/Y). Narrower spreads should help keep a firm lid on USD/JPY around the 160 point but spot gains may be limited by the fact that the USD is trading a little below our fair value estimate (157) currently.”
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