Trump retreats, dollar advances

•The dollar rose thanks to lower tariffs. •The fate of the USD index depends on data. •The yen has taken a clear direction. •The pound is hoping for British inflation.
FxPro | 297 days ago

The US dollar managed to halt its decline, thanks to the collapse of the chances of a rate cut in December to 44% due to hawkish rhetoric from Fed officials and reduced trade uncertainty. The White House announced tariff reductions on dozens of goods, as well as a reduction in tariffs for Switzerland from 39% to 15%.

 Investors understand that the peak of tariffs has passed and that the TACO or ‘Trump Always Chickens Out’ trade is alive. There is no point in hedging currency risks on investments in US stocks and bonds by selling the USD. The reduction in hedging ratios is helping the Dollar index.The same applies to fears about inflationary pressures. Donald Trump's announcement of $2,000 cheques to Americans, funded by tariff revenues, is pro-inflationary. Thus, inflation expectations and the Fed's attraction to keep rates will increase.Nevertheless, the further fate of the greenback depends on new data. The BLS has announced that it is ready to publish statistics on the US labour market for September on November 20th, a day after the October FOMC minutes release. These publications could ultimately determine the fate of the key rate on 10 December. As a result, EURUSD is bracing for more volatility.The same does not apply to USDJPY. The pair has most likely decided on the direction of its further movement. Despite verbal interventions, investors have not heard any words from the government about its readiness to act decisively. Experience from previous interventions in the Forex market shows that without the Bank of Japan tightening its monetary policy, the downward trend for the yen is unlikely to be broken.

 The pound has been fluctuating within a range of just over 100 points for the tenth day. A busy economic calendar and expectations of tax increases are pushing GBPUSD up and down. The Bank of England has claimed that 3.8% is the peak of inflation. However, the release of CPI data for October may show an acceleration, contrary to average forecasts of a slowdown to 3.6%. This will reduce the chances of a sharp cut in the key rate in December and provide support for the pound, albeit temporarily.

 

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