As we kick off a new week, President Trump’s policies remain a key driving factor for global markets as investors continue to be engrossed in the drama playing out in US politics. After last week’s Federal Reserve statement and Non-farm payrolls failed to ignite a significant dollar rally, this week’s economic calendar is noticeably quieter, leaving the news-feed and Trump’s twitter account as the biggest risks over the coming days.
Before taking the reins as President, Trump gave the dollar an impressive boost, however the tables have turned quite dramatically over the last six weeks and currently it seems difficult to associate Trump with anything but bearish movements in the greenback. The US dollar has been trending lower over concerns of protectionism, possible trade wars and a concerted effort by Trump and his administration to talk it (the dollar) down. Furthermore, last week unexpected volatility around the signing of the “immigration ban” executive order ensured that questions were raised regarding further upside of the Trump trade; over the weekend geopolitical tensions continued to run high as Iran displayed their discontent to America’s travel ban by threatening missile action and announcing they will discontinue doing oil business in US dollars.
Confusion remains over whether the travel ban will actually be passed or not, this looks set to be a legal fight that will end in the Supreme Court, but for now the impact for the markets of heightened geopolitical tension is some risk being taken off the table as we start the week.
US dollar outlook
The forecast for the US dollar is neutral; whilst near term downward pressure is expected; longer term the bulls are in play, as the US is still one of the few developed economies even considering a rate hike this year. The yen is bid versus the dollar as a move into safe havens dominates and gold is also gaining traction, rising to its highest level since November.
Brexit back in focus
Politics will be the main driving force behind the pound again this week as attention will shift to the Brexit Bill winding its way through the House of Commons. Given that the ruling Conservative Party command a majority in the Commons, any hurdles before this third reading are expected to be defeated with relative ease, allowing the Bill to move fairly seamlessly to the House of Lords.
Whilst the referendum result in June and Theresa May’s first insinuation of a hard Brexit in October saw sterling tumble, it has actually remained relatively stable since. The pound has been range bound between the 1.24 and 1.27 handles since late January and this week’s Parliamentary action is not expected to ignite any sharp movements, one way or the other.
On the other side of the coin, the dollar has been trending lower providing some support to GBPUSD; however, will little in the way of economic data from either the UK or the US in the early part of the week, the focus for cable will remain on any developments surrounding the triggering of Article 50 and on Trump policies.
Stocks to watch
Randgold Resources (LON:RRS) is shining in early trade after upping its dividend an impressive 52% whilst also reporting production has increased for the 6th consecutive year. This is an impressive set of figures and the key here will be the price of gold going forward; given the heightened uncertainty in the geopolitical arena, with Trump at the helm, gold could be looking to achieve $1300 should the safe-haven trade start to replace the Trump Trade, which would serve to boost the miner further.
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