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Much manifestation, not much lucidity: A few days to reflect on the possible implications of a Trump Presidency for the US, the rest of the world and the European political landscape hasn’t really done much to fill in the holes in our knowledge about what President Trump implies, relative to what Candidate Trump said.
The minutes of the December FOMC meeting, in which US policy rates were raised to 0.75%, showed that potential expansionary fiscal policy under President-elect Trump was discussed. As such, members indicated that upside risks to growth had increased. This was tempered, however, by uncertainties about what the fiscal policy impact will be, as well as the impact of the stronger dollar on the US economy.
While the dollar index (DXY) seems edgy at this juncture but senses strong support at 101.71 levels. To our surprise there seem to be no lingering doubts as to how reliable the news we are being told by the Trump camp are.
Treasury yields and the US dollar fell following the FOMC minutes of the December meeting. Although the minutes noted upside growth risks, they are arguably already incorporated to some extent in the Fed’s median ‘dot plot’ of members’ projections showing three hikes in 2017.
Instead, markets focused on ‘considerable uncertainty’ regarding the detail of potential fiscal stimulus plans, as well as downside risks to economic activity and inflation from further dollar appreciation.
The Japanese yen was the major gainer, with USDJPY at around 116, while the euro and, to a lesser extent, the pound also rose against the US dollar.
