The eyes of the world have been hooked on President Trump overnight as he delivered his first speech to congress. There was an element of surprise for viewers because Trump actually appeared Presidential during his speech, following what has been quite a rough first 40 days in office.
While the U.S. markets slipped lower and there was still no real clarity provided towards how Trump will implement his campaign promises, the shift in tone from the U.S. President was more guided towards how he publically appeared after winning the election back in November where he soothed investor’s nerves with messages around the need for partnership and peace. Nevertheless, the undertone of “America First, And Always” was still very much present but the U.S. President was at least not just pushing his far-right agenda on this occasion.
I believe that the USD should now strengthen over the near-term, not because of President Trump’s speech but because Federal Reserve officials are providing ongoing clues to the market that a possible interest rate rise in March is not something to completely rule out of the equation. While the markets might not have been pricing in a U.S. interest rate rise this month, U.S. economic data is maintaining its consistent strength and the Federal Reserve is maintaining its public intention towards raising U.S. interest rates around three times in 2017.
Basically my opinion is that the markets will now begin to shift focus away from Trump slightly, and more importantly, begin to price in the possibility that the Federal Reserve could pull the trigger in March.
Gold slipping from its highs
Gold has continued its weakness early Wednesday morning and if this momentum continues, it looks like the precious metal will enter a three-day losing streak. The main catalyst for the near three-month high seen late last week was due to investors hedging against political risk, but I believe that Gold is at risk to further losses as investors begin to price in at least the possibility that the Federal Reserve could pull the trigger and raise interest rates this month.
Investors need to be aware of the risks that Federal Reserve officials do appear to be preparing the financial markets for another US interest rate rise fairly soon, even if it does not occur as early as March.
GBP/USD still at risk
While it might appear like the British pound/U.S. dollar (GBP/USD) currency pair is attempting to consolidate after suffering three days of successive losses, there are still risks ahead for the British Pound and it wouldn’t surprise me if the Cable dipped even lower.
When it comes to the technicals, I am going to keep my eye out for whether the GBP/USD closes below 1.2350 in trading today because this would be seen as a possible signal that the Pound is at risk of falling back towards 1.20.
From a fundamental basis, the impending delivery of Article 50 from Theresa May and the re-emergence of a Scottish Referendum round 2 threat later in the future does favor a negative outlook for the Pound.
Australia avoids recession!
Australia has managed to continue its remarkable run of 25 years recession free after it was confirmed early this morning that the Australian economy has not slipped into a recession.
The Australian/U.S. dollar (AUD/USD) currency pair has popped higher on the news, but I still feel that the Australian currency is likely to surrender some more of its gains over the past couple of weeks.
India GDP reading exceeds expectations
This might not have been viewed as the most critical data release of the week by any means, but the GDP reading from India has defied expectations with the economy growing at 7%. Although this represents a slowdown from the previous level at 7.4%, it has defied the forecast just below 6.5% and counters the fears that the controversial note ban from the government last year was going to derail the outstanding economic progress that India has made over the past couple of years.
Perhaps it will take more time and there will be a bit of a lag before it can really be analyzed what impact the completely unexpected, and controversial decision to withdrawal high-denomination banknotes as part of an anti-corruption drive is going to have on the Indian economy.