Dollar slumps on Trump

The dollar’s slide accelerated yesterday. Remarks by Donald Trump – whose Greenland-related tariff threat a little over a week ago was the initial catalyst for the currency’s recent decline – added to the move lower. He indicated little or no concern with the dollar’s fall, saying it would “find its own level”. EURUSD and GBPUSD spiked to highs of around $1.2080 and $1.3860 immediately following Trump’s comments but are back at around $1.20 and $1.38 respectively this morning, still their strongest levels since 2021. EURGBP is marginally firmer at just under £0.87. Fed Chair, Jerome Powell, is likely to face some questions on the dollar following the conclusion of today’s policy meeting, though he will probably kick for touch and say dollar policy is a matter for the government. Although we’ll have to wait until next week, more interesting will be the ECB’s comments on the euro, given it believes an appreciation of the currency is a downside risk to its latest forecasts for Euro area growth and inflation and its Vice-President has previously stated that EURUSD above $1.20 would be “complicated”.

The dollar’s slide is not part of a broader sell-off in US assets. Indeed, the S&P 500 closed at a new all-time high, gaining almost 0.5% on the day. European stocks also had a positive session with the Stoxx Europe 600 also advancing by around half a percent. In government bond markets, short-dated US yields fell slightly on the back of weaker economic data while 10- and 30-year yields rose by 3-5bps. UK and German yields were flat to marginally higher on the day.

Consumer confidence in the US fell sharply in January to its lowest level since 2014 according to the Conference’s Board’s latest survey, with a whole host of issues – gas prices, food and grocery prices, tariffs, politics, and the labour market – all weighing on sentiment. In relation to the labour market, the net balance of respondents saying ‘jobs are plentiful’ fell to its lowest level since early 2021.

The Fed looks certain to leave interest rates unchanged today and is likely to point to steady policy for the next while (there’s some – mischievous (?) – talk doing the rounds that Trump will announce his pick for the Fed Chair job around the same time as the Fed publishes its policy statement!). It’s very quiet in terms of economic data with little or nothing of note scheduled for release.