President-elect leaves dollar bulls unimpressed
The long-awaited first press conference by President-Elect Donald Trump left many investors with more questions than answers as he failed to justify the current premium priced in the dollar and equity markets, says Hussein Sayed, Chief Market Strategist at FXTM.
We already knew that Trump wants to build a border wall with Mexico, bring back US production onshore, and that he’s willing to be the best job creator America has ever known, but what’s his plans on corporate tax reforms? How and when is he planning to spend on roads, bridges, and other infrastructure projects? Is he going to impose tariffs on imported goods from China, Mexico and the rest of the world? Unfortunately, no updates were revealed.
Thus, the greenback was dragged, falling against all major currencies on Wednesday with the dollar index falling to lowest levels since Dec 14 at 101.28. The selloff continued until early Thursday suggesting that dollar bulls are no more willing to price any additional premium until we get more clarity on his promised fiscal plans.
The continued fall in US treasury yields is another factor dragging the dollar. US 10 year yields have been in a down trend since Dec 14, losing 11.8 per cent in value after spiking 42 per cent since the election results were revealed.
US stocks were less impacted, and managed to close higher despite the volatility and sharp selloff in pharma stocks which were attacked by Trump. Whether the rally can be sustained will depend on two factors, earning growth and actions from Trump’s administration as his words and tweets are clearly starting to show less influence.
The combination of dollar weakness, lower US yields and doubts in Trump's policies offered gold a boost, with the yellow metal posting a high of 1,199. So far gold has recovered 6.8 per cent from December lows, and trader higher in 11 out of 13 days. Fed Chair Janet Yellen’s speech will probably decide whether we’re going to see a break and hold above 1,200 today.