Dollar needs Trump pro-growth assurances to stay supported - ING

Analysts at ING note that the fundamental drivers of markets were thwarted by the words of political leaders last week.

Key Quotes

“While President Trump's 'too strong' dollar comment and combative inaugural address has taken some of the steam out of the greenback's rally, we remain wary that dollar strength could be the ultimate by-product of the new President's 'America First' policy stance. Indeed, the updated White House pages show that 25 million new jobs and 4% GDP growth remain the economic pledges of the Trump administration. With a US economy already close to full employment, it is difficult not to see Trump's fiscal plans generating sufficient inflationary pressures to drive US yields and the dollar higher.”

“But equally, investors are placing greater focus on future US trade and foreign policy. Naturally the market may be bracing itself for President Trump to formally name China a currency manipulator. In practice, this would spark bilateral negotiations rather than any immediate tariffs †but presumably the market wouldn't take too kindly to this. USD/JPY remains a bellwether of Trump sentiment: the latest move below 114 is indicative of some growing protectionist fears creeping into markets.”