The US Dollar
The US Dollar started the week off with a pickup climbing close to the three-week high at 101, as Trump pledged last week to unveil the details of the “phenomenal” tax cuts for the US companies. These eased investors angst in the key area of the president’s policies.
Trump bets on the growth in investments (again in new jobs) by lowering taxes for businesses, while the tax relief for individuals, should lead to an increase in the consumer spending. With the swelling of the budget deficit, inflation pickup may be greater than currently expected. This should be a signal for the FED to switch from the wait-and-see position to a proactive one where the regulators will protect the economy from going into overdrive with timely increases in the interest rates. So, it is the right expectation to see a rally in the US Dollar, however, it remains a mystery how the government will deal with a strong currency, which could dampen the growth of US exports.
The yields of US long-term bonds have resumed growth after a short-term decline in the last week. Its steady growth clearly points towards a further acceleration of inflation expected by the market. The profits of ten-year bonds rose by 0.67% to 2.425% on Monday.
The strengthening of the Yen was interrupted during the Asian session due to the sudden straightening in the Dollar. USD/JPY rebounded from 113.20, testing the 114.04 level on the GDP data. Although, the annual growth averaged 1.0% the quarterly data and nominal GDP fell short of forecasts. The yield on ten-year Japanese bonds also continued to grow, rising by 4.60% on Monday to a level of 0.091%. The market confidence in the revival of economic growth in Japan strengthened, and considering the strong greenback, USD/JPY pair has a little probability of continuing the decline in the medium term.
The British Pound
The British Pound keeps sticking to the level of 1.25 in anticipation of the consumer inflation data on Tuesday, as the president of the Bank of England hinted towards the previous meeting as an example. Starting that the rate increase would be justified if the economic data showed the continuing underlying momentum of the economy. It’s likely to see a strengthening of the Pound in anticipation of the report and the data above forecasts may allow the pair GBP/USD to test the level of 1.26.
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