The US Dollar fell sharply yesterday after the US President-elect; Donald Trump flagged the strength of the greenback. In an interview with Wall Street Journal, Trump said that the dollar was “too strong” and that the recent attempts from China to support the yuan were aimed at allaying fears that the authorities were deliberately weakening the currency.
His comments sent the greenback into a tailspin while media working overtime, calling it a change in the nearly two-decade policy led by the Clinton administration of favoring a stronger currency. The US Dollar was showing signs of exhaustion to the nearly two straight months of the rally which sent the dollar index surging past the 100.00 psychological level which it failed to break last year to eventually rise to a 14-month high before turning flat.
Marc Chandler, from Brown Brothers Harriman, said, “This is the first time we have a president-elect say the dollar has gone too far. He’s saying things and doing things that no president has ever done before.”
The dollar fell on the day, with the ICE futures, US Dollar index closing 1.27% lower on Tuesday, posting a fresh 6-week low at 100.62. The sharp declines were also attributed to the continued unwinding of the long dollar trade that was building up since the November election results.
Market participants got the first taste of disappointment last week where Trump, in his first press conference did not make any references to the fiscal spending plans, which saw the greenback give up some of the gains and was aptly reflected in the weekly CFTC Commitment of Traders Report which showed that speculators trimmed their bullish bets on the US Dollar after two weeks of gains.
U.S. December Consumer price index expected to accelerate
Coming up later today will be the December consumer price index data. Economists forecast a 0.3% increase in the headline inflation while core CPI which excludes volatile food and energy components is forecast to rise 0.2%, rising at nearly the same rate as the month before. In November, US consumer prices rose 1.7%, while core CPI was recorded at 2.1% on a year over year basis.
Driving inflation higher was mostly attributed to rising rents which pointed to a steady increase in price pressures. With inflation moving in the right direction, today’s consumer price index data could be an important breakthrough, especially for the headline CPI data. On a year over year basis, economists are expecting the headline CPI in December to rise 2.1%, while expecting the core CPI to remain steady at 2.1%. This would put the headline inflation rate just above the Fed’s 2% target rate and could potentially strengthen the view of another rate hike from the Fed, as early as March this year.
U.S. Dollar Index – Technical Outlook
From a technical outlook, the US Dollar index is nearing the support level at 100.15 – 99.85 which is no doubt likely to offer support to the prices. The daily Stochastics is also now in the oversold level indicating weakening momentum. A retracement off the support at 100.15 – 99.85 will see price retest the breakout from the rising median line putting the upper range of this bounce between 102.50 – 101.75.