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Yen Soars, US Dollar Drops as the Trump Trade Fizzles

Yen Soars, US Dollar Drops as the Trump Trade Fizzles

2017-03-27 07:55:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points:

  • AHCA healthcare bill failure throws the “Trump trade” into reverse
  • Fed rate hike speculation fizzles against a backdrop of risk aversion
  • Yen up, US Dollar down, stock futures hinting at more of the same

The US Dollar slumped against its major counterparts to start the trading week. Fed rate hike speculation cooled, undermining yield-based support for the benchmark currency, after last week’s failure of the AHCA healthcare reform bill.

The measure’s fate was treated as a referendum on the Trump administration’s ability to turn campaign rhetoric into policy. Doubts about the narrative at the heart of the “Trump trade” – that the President’s expansionary fiscal stance will boost growth and inflation alike – have multiplied.

Not surprisingly, that has also meant that the flattening of the expected Fed rate path has been accompanied by risk aversion. Stocks suffered in Asian trade and the perennially anti-risk Japanese Yen dutifully advanced, proving to be the strongest performer in G10 FX.

Germany’s IFO business confidence survey headlines an otherwise dull economic data docket in European trading hours. A slight uptick is expected, but this seem unlikely to mean much for the Euro in its own right considering its limited implications for near-term ECB policy trends.

Later in the day, comments from Charles Evans and Robert Kaplan, Presidents of the Chicago and Dallas Fed branches respectively, are scheduled to cross the wires. Fiscal uncertainty confounds the central bank as much as it does investors, so there may be little here to turn the risk-off tide.

European bourses are opening deeply in the red and US stock index futures are pointing to more of the same once Wall Street comes online. This argues for continuation of overnight trends, with the Yen leading the way higher against a battered greenback.

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Asia Session

Yen Soars, US Dollar Drops as the Trump Trade Fizzles

European Session

Yen Soars, US Dollar Drops as the Trump Trade Fizzles

** 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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