Is the Trump honeymoon over? That is the question being asked today after the breaking news late last week and what has dominated attention over the weekend with this being that President Trump was defeated in his quest at replacing Obamacare. The result of the Trump healthcare bill was not in line with market expectations, but more importantly it has made the markets begin to get nervous about what other possible hurdles Trump could potentially face when it comes to implementing other aspects of his campaign agenda.
It is not the failed healthcare bill itself that has caused all these market moves. Yes that may well have been the trigger, but investors are worried about the challenges Trump will face in trying to get his other policies passed which may well limit the government’s fiscal spending. The worry is that only will this weigh on GDP, but potentially on inflation too. Thus, the Fed may not raise interest rates as aggressively as had been priced in, hence the falls in the dollar.
Sterling has staged a remarkable rebound this week with bulls almost rebelling against the Brexit woes by propelling the British pound (GBP/USD) currency pair above 1.2500 during Thursday’s trading session. The dollar’s persistent weakness combined with February’s blockbuster retail sales figure of 1.4% may have created an illusion of a bullish bias returning to sterling.
Earlier, data from the ONS showed consumer price inflation in the UK rose to its strongest level in nearly three-and-a-half years to 2.3%. The pound’s reaction was swift. The British pound/U.S. dollar (GBP/USD) currency pair jumped to 1.2470 while the EUR/GBP slumped to 0.8655. The GBP has since eased back a little but remain near the day’s highs, which suggest more gains are likely.
The GBP/USD has hit a fresh post-FOMC high this afternoon. Like the Bank of Japan and Swiss National Bank, the Bank of England decided to keep its monetary policy unchanged. But it wasn't a unanimous decision as Kristin Forbes voted for a 25 basis point rise amid concerns over inflation. This caused the pound to jump across the board.
Sterling bears were unleashed during Wednesday’s trading session, with the British pound/U.S. dollar currency pair sinking to a fresh seven-week low at 1.2150 as investor anxiety heightened ahead of the UK Spring Budget speech. Treasury chief Philip Hammond will be in the limelight today, and is set to provide some insight on the UK government’s financial plans as it embarks on its quest to exit the European Union.
The general consensus going into today’s UK budget is that Chancellor Philip Hammond will disappoint and that the pound/U.S. dollar (GBP/USD) currency pair may extend its declines towards 1.20. He is well aware of Brexit risks and may thus predict a more turbulent economic outlook.
As the overall markets are in a proverbial holding pattern in anticipation of the impending figures on labor and economic conditions, traders are closely watching the currency environment, as the strength of the USD is impacting global currency pairs, commodity prices and the treasury markets.