• Mnuchin backs the greenback
  • May the force be with you
  • Lurking in the shadows
  • Does Brussels care?

The dollar is taking broad gains this morning after Treasury Secretary Steven Mnuchin confirmed that the White House is not targeting a weaker currency. Trump said last week that the dollar was getting too strong, spooking investors who immediately moved to sell USD. Mnuchin strove to put this in context in an interview with the Financial Times this morning, saying that President Trump was “absolutely not” trying to talk down the USD. Mnuchin said the President’s comments referred to short-term moves, but in the longer run he and the President agree that “the strength of the dollar is a good thing. It’s a function of the confidence and the strength of the US economy.”

The dollar may have to battle more than talk however, as reflation trade doubts begin to surface. Citing a lack of momentum on reflation, top US investment bank Goldman Sachs has closed some of their top trade bets for 2016, long positions for the dollar vs. the euro, yen, and yuan. Inflation expectations have dampened, and as Trump administration struggles to push legislation through Washington investors are afraid that the lead time for tax reform and fiscal spending may be longer than initially thought.

Early elections in the UK continues to be a key theme for investors. Parliament has voted to confirm that the elections will move forward, and May’s Conservative Party, which currently hold a slight majority with 17 seats in the House of Commons, is leading in the polls by 21 percentage points according to the latest opinion polls. If the Prime Minister is successful in seating more of her own party members in Parliament, she not only has further confirmation of support from the British people, but she will have an easier time pushing Brexit legislation through. By pushing an election now, it pushes the nest election out to 2022, two more years to ensure that Brexit is implemented smoothly after the Article 50 negotiations conclude in March 2019.

Does this mean that the pound will continue higher? Not necessarily. While a higher Conservative majority would paint a unified front on the domestic side and reduce political uncertainty internally, it is unlikely to change the UK’s position in Brexit negotiations with Brussels. The domestic politics of Britain are of likely to be of little consequence to EU leaders who will be vying for terms that best suit their own interests.

EURUSD:  Euro gave way to the wave of USD strength after the US Treasury Secretary said the US is not targeting a weaker currency.

GBPUSD: The pound gave up some of the early election-hype to the greenback as Washington confirmed that the US does not want a weaker dollar.

AUDUSD:  Aussie dollar continues to see downward pressure building from weak iron ore prices.

USDCAD:  Canadian dollar on a steady decline against the USD across the morning.

USDJPY:  Yen weaker despite continuing uncertainty in the French elections, likely playing the near-certain victory of Theresa May’s bid for a stronger majority in the UK Parliament.