Exuberance Bleeding Out Of USD

Not the end of Trump rally

The trickle of a dollar selloff that we had seen at the beginning of yesterday’s session turned into more of a swell by the end of the day with the greenback lower against all other G10 and a majority of emerging market currencies.

Readers of the morning update will know that buying USD has been a highly crowded speculative trade since the election of Donald Trump and we have remarked a number of times that while the market is pricing in all the ‘good’ things about Trump – lower taxes, fiscal stimulus, cuts in regulation – the ‘bad’ things – increased protectionism, tightening monetary conditions and antagonistic foreign policy as well as his obsession with Twitter – have not.

This sell off doesn’t feel like an anti-Trump surge. Moreover it is unlikely to be the end of the Trump dollar bull market but speculators and investors who had made a stronger dollar one of the most consensus trades I’ve seen in all my years in currency may be just looking for a little safety now.

The dollar weakness translated into GBP/USD strength, rising back into the 1.24s and EUR/USD above 1.06 by the time we shut down for the day in Europe. We find ourselves roughly in that position as we walk in this morning.

Obama’s last jobs report

The last jobs report exclusively of the Obama Presidency is released this afternoon at 13.30 GMT and with it will sign off a monumental improvement in the US labour market since he first took the reins of the US economy in 2008. At its peak unemployment was 9.93% in the US, it is less than half of that now. Once again, the crucial factors within this jobs report are not the headline number but what is going on in wages and the levels of participation within the labor market; are more people joining the jobs market and are they getting paid better for it?

If so, then the US labor market should be meaningfully contributing to inflation and expectations of further interest rate rises through 2017.

Services continue to grow in UK sweet spot

News from the global services sector was strong yesterday with PMIs and ISMs showing broad gains across the globe. The UK was a highlight with orders and new business driving higher. As per usual, inflation pressures remain a risk but it is clear that UK is living in a bit of a sweet spot at the moment for export growth; the devalued currency makes things cheaper and we are still a member of the EU and while EU trade makes up less than half of our annual trade flows, business has yet to need change much and therefore can simply get on with their work.

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