USD: Trump reduces threat of tariffs on China – ING

Donald Trump’s speech in Davos yesterday included most of the threats related to the implementation of his America First vision, something markets are becoming accustomed to. Comments on oil prices and interest rates seemed to attract the most headlines. Trump said OPEC should increase production to allow for a drop in oil prices, leading to another drop in oil prices that have been under pressure since hitting multi-month highs last week. The administration’s new plan is to reduce energy costs and, by extension, interest rates, says Warren Patterson, a commodities analyst at ING.

Trump wants oil prices to go down

Trump also said he will discuss with Federal Reserve Chairman Jerome Powell his view on rates “at the right time,” likely suggesting that government pressure should not be felt yet when the FOMC meets next week. We hope that a decision to hold rates steady next week will not be the trigger for another round of liquidation of long USD positions.

However, overnight, the dollar took a hit when Trump surprised by telling Fox News that he would prefer not to impose tariffs on China. This appears to fuel a growing sense that Trump is failing to deliver on protectionism compared to his pre-inauguration comments, and that ultimately some of those tariff threats may not materialize as long as some concessions are made on trade.

We wouldn’t be entirely surprised if Trump’s next comments on the matter point in the opposite direction. But barring that, dollar momentum may remain soft today. On the data side, keep an eye on the US S&P Global PMIs today: a small recovery is expected in the manufacturing index and housing sales data (the latter for December).

Source: Fx Street

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