Trump Anxiety and US Growth in Focus

Q4 GDP expected weaker on Friday

President Trump set a 4 percent growth target for the U.S. as one of the points he felt America was lagging behind other economies. The publication of the advanced GDP numbers will serve as a benchmark for how big a gap there is to cover.

The U.S. Bureau of Economic Analysis (BEA) will release the first estimate of fourth quarter gross domestic product (GDP) on Friday, January 27 at 8:30 am EST. The forecast by the Atlanta Fed calls for a gain of 2.9 percent. The expected range goes from 2.1 percent to 3.0 percent with a slowdown in exports in the fourth quarter.

The USD is higher across the board as stock market gains and comments from president Trump about infrastructure spending gave the currency a lift. The inflation implications of fiscal stimulus and investing in infrastructure will force the Fed to keep hiking rates and rate divergence will keep the dollar bid. Trump has gone back and forth from his growth policies that boost the USD and his protectionist ones that undermine the strength to the currency. U.S. growth will be a focus point and the release of the first of three estimates on Q4 growth is sure to get a reaction from the current administration.

The EUR/USD lost 0.417 percent in the last 24 hours. The single pair is trading at 1.0695 on the back of President Trump’s words. The USD is higher when the President gets back on script about infrastructure spending and fiscal stimulus, but loses ground when he pushes the protectionist and immigration agenda that won him votes.

U.S. economic data has been mixed. Wholesale inventories rose 1 percent but sales of new homes fell 10.4 percent in December. Unemployment claims in America beat expectations by rising to 259,000 in the last week. The dollar got a boost from President Trump with a pledge for infrastructure spending in between some of his more protectionist rhetoric. The currency responds well to higher inflation expectations as interest rates will follow suit with the U.S. Federal Reserve ready to hike as needed.

The price of oil rose 1.873 percent on Thursday. West Texas barrel is trading at $53.10 after production cuts form Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members are being reported. There are also positive signs of growing demand in the United States combined to drive the price of oil to three week highs. The challenge going forward will be on producers staying within the agreed output as prices climb higher and the threat of increased production from U.S. shale producers.

The optimism around the Dow breaking above 20,000 and reports of the crude output agreement having an impact on supply have energy prices jumping. The main threats are within the OPEC itself as countries that have special permission to not be part of the cut like Iran and higher production from the U.S. and Canada could limit the gains and even reverse the upward trajectory of oil prices.

The USD/MXN gained 0.023 percent in the last 24 hours. The currency is trading at 21.2556 after the President of Mexico decided to call off the meeting in Washington after U.S. President Trump insisted Mexico will pay for the border wall. The market has already priced in the negative effect of a more difficult trade environment ever since Trump was the clear winner of the U.S. elections. Both the CAD and the MXN are not as sensitive as America enacts an “America first” stance with the NAFTA treaty clearly in focus. It is hard to quantify the economic benefits of canceling the treaty, almost as hard as it is to quantify the gains to each nation from being part of it. It is unclear what the outcome will be as the U.S. is not shying away from playing hardball and the outcome will be a lesson on U.S. Trade policy going forward.

Market events to watch this week:

Friday, January 27
8:30am USD Advance GDP q/q
8:30am USD Core Durable Goods Orders m/m

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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