USD: Investors on edge as we welcome the 45th President of the United States

Donald Trump’s inauguration on Friday was the biggest event of the week, and the catalyst for broad based losses in the USD. The president promised to put “only America first”, renewing his campaign commitments to keeping jobs in the US and keeping the world out. Investors had been discounting this campaign promise in favor of his commitment to increase fiscal spending and cut taxes, causing the dollar to rally since the election.

As this sentiment unwinds and the “Trump trade” fades, the dollar could continue to weaken unless investors get more clarification on the policies that will grow the economy instead of closing our borders. We expect the USD to remain extremely vulnerable to headline news and Trump comments throughout the week. 

EUR: Domestic fundamentals stable, waiting for the ECB.

Last week the European Central Bank (ECB) kept interest rates and the current stimulus program unchanged. ECB president Mario Draghi took a cautious tone in his press conference, affirming that while the risks to the Eurozone are not currently pressing, the currency bloc still requires “very substantial” support from the central bank (more here).

Mr. Draghi was back at the podium for an awards ceremony Monday, but he shied away from hard economics and monetary policy to deliver a message of unity for the European Union. In an age where European politics are characterized by nationalism and protectionism, one thing is clear: Draghi is gunning for support to keep the Eurozone together, an increasingly difficult task in the post-Brexit climate.

CAD: Broad weakness stemming from disappointing data

CAD gave up lows near 1.30, losing three cents against the dollar last week. Canadian data disappointed expectations last week, with CPI inflation missing expectations for both the monthly and yearly reading, even when discounting for more volatile items such as food and gasoline. Retail sales also came in quite light for the month of November which shows that consumers aren’t spending as much as analysts expected.

Lower oil prices continue to weigh on CAD this morning, but with politics in focus and oil prices fluctuating, it is anyone’s guess where USD/CAD goes from here.

GBP: Theresa May is a breath of fresh air and investors are loving it

After closing on a high note Friday, the pound continued to march higher, touching the highest levels against the dollar since December. Sterling continues to look attractive as investors move away from the USD and Theresa May has done much to allay Brexit fears in her speech at the World Economic Forum and in an interview preceding it. May laid out her 12 step plan for a clean Brexit, and announced that the ultimate agreement would be subject to parliamentary approval. Markets like certainty and May delivered exactly that.

Ahead we have another big week for the UK as Theresa May will be the first world leader to meet with President Donald Trump this Friday. The media is abuzz with speculation as the prime minister has echoed the president’s wish to come to quick agreement on a trade deal. 

AUD: A China story

AUD was lifted by strong data out of China. Chinese GDP growth beat expectations, and although their inflation figures was slightly off, production prices grew at the fastest pace in 5 years.

JPY: Following risk appetite

After giving up some of its gains during the inauguration speech, it has continued to gain strength this morning. The yen has been an interesting currency to watch, and likely to continue to peak interest. JPY tends to strengthen when uncertainty is high and investors move out of risky assets. With broad political uncertainty in the US, UK, and Europe, the yen could continue to move up if investors are feeling uneasy.