US Dollar Sinks as Investors Sour on Trump Trade

Talking Points:

• US Dollar drops after Trump press conference disappoints
• Yen gains as stocks decline, Loonie gains amid crude oil rally
• Fed-speak may do little to derail “Trump trade” unwinding

The US Dollar succumbed to broad-based selling pressure in the aftermath of a press conference with Donald Trump. The President-elect was short on policy details as he took reporters’ questions for the first time in six months. This clearly disappointed investors that have been eagerly waiting for details on his economic policy proposals.

The greenback rallied to a 14-year high in the two months after the election amid speculation that Mr Trump’s favor for tax cuts, deregulation and big-ticket fiscal stimulus will boost inflation and push the Fed into a more aggressive interest rate hike cycle. Skepticism has emerged since the calendar turned to 2017 as details remained scarce and this presser seemed to stoke traders’ desire to scale back exposure.

The Japanese Yen outperformed as capital flows away from the so-called “Trump trade” undermined risk appetite, which bolstered demand for the perennially anti-risk currency. The Canadian Dollar was also a standout as USD weakness translated into a de-facto boost for crude oil prices, a frequent pace-setter for the Loonie considering its home country’s prowess at exporting energy.

Looking ahead, a lackluster offering of US economic data means there are few obstacles standing in the way of continuity for established momentum. A bit of Fed-speak is on the docket, with comments from incoming FOMC voters Patrick Harker and Charles Evans – Presidents of the Philadelphia and Chicago central bank branches – on the docket. Even a hawkish tone may fall on deaf ears however.

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

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