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U.S. Dollar Bulls Temper Optimism Post Trump Press Conference

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Investors who were expecting to hear about the proposed fiscal spending plans were left disappointed after the U.S. President-elect failed to make any mention of the new administration’s plans on the economic stimulus, trade, and tax. The U.S. dollar fell broadly by Wednesday’s close due to lack of clarity and was the weakest currency among the majors.

The Australian and New Zealand dollar emerged on the top posting daily gains of 1% and 0.94% respectively. USDJPY which staged an impressive rally was also showing sign of weakness as the dollar was seen trading within reach of the 114.00 handle, last seen in late November – early December.

Gold prices also posted modest gains, rising 0.30% by the close and maintained the strong and steady gains since late December. At the time of writing, the precious metal is within a few cents from re-testing the $1200.00 an ounce price level.

Daily Currency performance (11/01/2016)
Daily Currency performance (11/01/2016)

Although speaking on a number of issues, Trump failed to specifically talk about the economy. Trump named China, Japan, and Mexico as countries with which the U.S. has a trade imbalance, but Russia overshadowed the press conference following the alleged cyber attacks and influencing the U.S. elections. Stocks in emerging markets fared better in the lack of any protectionist speeches by Trump, although the Mexican peso and the Turkish lira remained the worst performing currencies. The Mexican peso fell 0.37% against the U.S. dollar while the Turkish lira was down 2.07% on the day.

Mr. Trump maintained that he would make Mexico pay for the border wall and also warned that companies that were thinking of moving jobs overseas would have to pay for a “border tax.”

Mr. Trump reiterated that he will build a wall at the Mexican border and will most probably have Mexico pay for it in taxes. His comments on Mexico were relatively positive in a way, but the President-elect made it quite clear that the Mexican wall was going to be high on his priority list.

“We are going to build a wall. Negotiations will start immediately with Mexico, but I don’t feel like waiting a year or a year and a half.” Trump said in his speech yesterday.

Japan’s government was quick to comment on Trump’s speech with Yoshihide Suga, the chief cabinet secretary noting that the government was “thoroughly analyzing” Trump’s comments, saying that “The Japanese government believes active and free trade investments are the engine and source of the U.S. and Japanese economies.”

The dollar’s reaction yesterday saw some analysts being to question the so-called “Trump rally” which has sent bond markets into a tailspin while pushing the U.S. dollar close to 14-year highs. By failing to talk much about the economic reforms upon which much of the dollar rally was based upon last year, yesterday’s press conference from Mr. Trump was indeed a far cry from his election campaign speeches which focused on pro-growth and protectionist policies. If the markets were looking for some re-assurance from the incoming President, there was none. However, analysts expect to see the scripted speech from Trump to touch upon the global currency and bond markets which could see some knee-jerk reaction in the markets.

Despite the weakness in the U.S. dollar, it is still too early to tell if this correction will be stronger as bargain hunters are likely to come into the market to buy the dips. Looking ahead, the economic calendar remains light with only Janet Yellen’s speech coming up later this evening followed by Friday’s PPI figures and retail sales. A positive beat on expectations could no doubt renew the bullish appetite among traders, but it is best to tread with caution especially as the new U.S. administration takes office in just about a week’s time.

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