Talking Points:

  • US Dollar sellers inspired by December’s FOMC meeting minutes
  • ISM, ADP may keep USD under fire amid “Trump trade” unwind
  • British Pound may find an upside catalyst in upbeat UK PMI data

The US Dollar traded lower overnight, touching a two-week low against its top counterparts. The currency began to retreat earlier in the week having hit a 14-year high on the eve of 2017. The move has mirrored a pullback in US Treasury bond yields. This hints that traders are reducing exposure to the so-called “Trump trade”, which envisions a steep Fed rate hike path courtesy of an on-coming inflationary fiscal policy pivot.

Today’s selloff found added inspiration in minutes from December’s FOMC meeting (as expected). Officials seemed far less convinced in the need for faster tightening than investors, coming out split on the outlook for inflation and stressing fiscal policy uncertainty. This is a message that fell on deaf ears previously but seems to have struck a nerve this time with a correction already in progress.

The Yen traded broadly higher as Japan’s benchmark Nikkei 225 stock index declined, fueling demand for the perennially anti-risk currency. The move may have reflected digestion after shares surged yesterday – posting the largest advance in two months and hitting a one-year high – as liquidity returned following the New Year holiday.

UK PMI data headlines an otherwise tame European economic calendar. The composite gauge is expected to show manufacturing- and service-sector growth slowed for the first time in five months. UK news-flow has cautiously improved relative to consensus forecasts recently, hinting analysts are underestimating the economy’s vigor and opening the door for an upside surprise that may boost the British Pound.

Later in the day, ADP and ISM data are expected to show that US job creation and growth in the service sector slowed in December. Such outcomes may compound pressure on the greenback, offering fresh fodder for profit-taking. Follow-through may be somewhat restrained by the proximity of official labor-market data due on Friday however, with traders reserving judgement in the meantime.

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Asia Session

US Dollar Pullback May Continue on ISM, ADP Data

European Session

US Dollar Pullback May Continue on ISM, ADP Data

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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