The US dollar rose yesterday, thanks to strong economic data and minutes from the FOMC which suggested that more interest rate hikes are in store. This morning, the US dollar has given up most of its gains. The dollar continues to look overbought in the short-term time frame, and is thus particularly susceptible to news reports. Earlier today, Reuters reported that Trump will most probably name Jerome Powell to lead the US Federal Reserve. The White House will make the formal announcement later today. On Twitter, Trump claimed that people will be "extremely impressed" with his pick for the future Fed Chair. Given Powell's dovish views, his appointment signals that the status quo is set to continue. Given that long-term interest rate expectations are now lower, the dollar is selling off as a result. In tax news, Bloomberg is reporting that corporate tax cuts may be phased out after 10 years. Earlier reports suggested that corporate tax cuts may be gradually phased in over time. Given that a temporary tax cut is much weaker than a permanent change, the news is dollar negative if true.
USD/JPY is now above 113, and is currently trading closer to 113.90. EUR/USD rose this morning is now above 1.1650. The pound is up again today, with GBP/USD currently above 1.3280.
The Fed did not hike interest rate as expected, choosing instead to set the stage for a rate hike later in December. Core Personal Expenditures remained flat over the prior figures (1.3% vs. 1.3% prior), while the Dallas Fed manufacturing index was higher than prior figures (27.6 vs. 21.3 prior). Case-Shiller home prices missed expectations (5.9% vs. 6% expected), while Chicago PMIs beat expectations (66.2 vs. 61). Consumer confidence figures were very strong (125.9 vs. 121). ISM manufacturing PMIs missed expectations (58.7 vs. 59.5 expected), while ADP employment figures beat expectations (235k vs 200k expected). Markit manufacturing PMIs were stronger than the previous print (54.6 vs. 53.1 prior). Later today, we’ll see jobless claims, labor costs and productivity. Finally on Friday we’ll get nonfarm payrolls, labor force participation, the unemployment rate, Markit Services PMIs, ISM non-manufacturing PMIs and factory orders. Last week saw very strong Q3 GDP figures.
After US bond yields fell on Fed Chair and tax news, we are downgrading the US dollar to neutral. In early October, we warned that the dollar looked overbought in the short-term time frame. After strengthening recently, the currency is now again above overbought thresholds. Our analysis is based on various technical indicators when looking at a daily chart of the US dollar index.
Thanks to progress in enacting Trump's tax reforms, the US dollar has been strengthening since mid-October. The currency has also been supported by rising bond yields as Trump looks set to select the next Federal Reserve Chair. As such, we are upgrading our medium-term outlook on the dollar back to bullish. After looking oversold in early October, the dollar is now trading within normal conditions. This is based on technical indicators when looking at a weekly chart.