After Falling on Trump, USD Turns to Fed Speakers for Support
- Lack of policy details during yesterday's press conference has markets doubting substance of recent 'Trump reflation trade.'
- Five Fed speakers today under the microscope as traders are desperate for policy specifics (from somewhere).
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The 'Trump reflation trade' took another hit yesterday after an unorthodox press conference scant of fiscal policy specifics sapped confidence from markets. The US Dollar, which has been driven by surging US yields since the November US elections, has been undercut as market participants' attitude is shifting from 'hope' to 'concern' that the vague platitudes of tax reform and infrastructure spending won't translate into actual policy once President-elect Trump moves in 1600 Pennsylvania Avenue.
Instead, the US Dollar now turns to the plethora of Fed speakers due out today for support. Yet given that the Fed's recent turn in hawkishness has been primarily driven by speculation over changes to US fiscal policy - which we just got few details on - it seems this circuitous bit of logic doesn't server to help the greenback. Now that the market POV is shifting to, 'We're less certain over changes to US fiscal policy,' traders may be prone to pay more attention to lack of confidence among Fed officials over the timing and pace of forthcoming rate hikes.
Of the five Fed speakers today (Harker, Lockhart twice, Evans, and Bullard), only St. Louis President Bullard is a voting member this year. In fact, relative to last year when the Fed put outs its more hawkish dot plot in December, the 2017 FOMC voter composition skews more dovish, as noted last week.
Now that US yields have started to pullback, validating our concerns earlier this week that the US Dollar was teetering, the primary fundamental driver of greenback strength the past two months is drying up. Given the outsized net-short US Treasury position held by speculators in the futures market, there may be some time required for the market to digest the recent 'Trump reflation trade' before the US Dollar rallies again.
--- Written by Christopher Vecchio, Senior Currency Strategist
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