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US Dollar on a rollercoaster ride of data and politics

Published: Friday 16 March 2018

  • ​​Dollar strength continues, despite political antics
  • Pound enjoys stronger position, is pipped to the post by USD, and then bounces back…
  • Guidance for USD buyers and sellers
​By David Johnson

The US currency is on a wild ride at the moment. The Dollar has been under pressure for some of the month from political controversy, but US data continues to improve and that is adding a note of stability. Ironically, the USD was stronger after the US President threatened tight trade tariffs with much of the world on imported steel and aluminium; and it has grown in strength, thanks to largely positive data announcements. However, it isn’t all one way traffic, even though it has been a rollercoaster ride.

US Unemployment Claims were down more than forecast this week and New York’s Empire State Manufacturing Index was at better levels than anticipated, providing some good news for the US economy. In contrast, the Philadelphia Manufacturing Survey failed to hit expectations at 22.3, as opposed to the forecast of 23.1 and previous results of 25.8. US equities looked stronger than those in Europe, providing further fuel for the US Dollar.

Dollar strength continues, despite political antics

A sudden reversal of the US Dollar’s fortunes was largely driven by recent political shenanigans in the US. After Trump’s Chief Economic Adviser, Gary Cohn, announced he was stepping down to US Dollar strength was undermined. Trump sacking his Secretary of State, Rex Tillerson, and replacing him with CIA chief, Mike Pompeo, followed next – and the shock of that also weakened the USD.  However, in contrast, the announcement that Larry Kudlow, CNBC pundit and financial commentator, will be replacing Cohn seemed to have a calming effect on the US currency, as Kudlow has experience from working with former president, Ronald Reagan, and has spoken out against trade tariffs. He does though, appear to share Trump’s opinions of China. It will be interesting to see what happens with this partnership.

Pound enjoys stronger position, is pipped to the post by USD, and then bounces back…

The Pound, which has had a good run recently – thanks to positive economic data and some apparent light at the end of the tunnel in the Brexit negotiations for a transition deal – had fallen against the US Dollar last week, but is bouncing back. This largely comes from Russia retaliating over the deportation of Russian diplomats from the UK, but encouraging economic data from the US has also helped the USD to gain momentum against its British currency partner.

Brexit continues to be the only elephant in the room that actually gets discussed ad infinitum; and any positive or negative outcomes from negotiations – or indeed rhetoric from political and financial commentators – has the power to set Sterling in motion, either up or down. Round and round we go…
USD dollar bills
What next for GBPUSD?

Even with Sterling’s recent slip, the GBPUSD pair has reached the 1.40 level on several occasions recently, reaching a high of 1.41 in mid-February and falling to 1.37 at its lowest in late February. It seems to keep hovering below the all-important 1.40 mark as the US Dollar enjoys its slight rebound, after the trade tariff controversy hit markets hard and nervous investors turned to the safe haven currencies, and with Sterling staying stable – for now...

With political uncertainty across the US and Europe, and Brexit in the UK, markets are cautious; this is reflected in the direction of the key currency pairs. The Euro has also recently lost ground against its American currency counterpart, a sign of the increasing volatility in currency markets as politics takes their toll.

Guidance for USD buyers

Many markets are range trading at the moment; and this pair is no exception. A range has been established between 1.37 at the very bottom end and 1.41 at the top. 1.40 is pivotal. If the Pound can break and stay above that level over a week end, there is scope for further GBP strength, but the Russian problem has the potential to boost the USD as a safe haven; and that effect cannot be underestimated. Any visit to 1.40 is considered a good USD buying opportunity at the moment. Be wary of any dips below 1.38, because there is scope for further USD strength if that happens.

Guidance for USD sellers

A strong run above 1.39 may gather momentum to push through the 1.40 barrier; with additional gains not beyond the realms of possibility in a volatile market. If 1.41 is breached, the whole picture will have changed.

Any dips down to 1.38 are considered good USD selling levels at the moment and any further decline would require a significant catalyst. An escalation of the Russia – UK – US rhetoric or any sign of a trade war could be just such a catalyst, so be wary of that, too.
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