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U.S. Growth Data In Spotlight, Dollar Awaits Trump's Next Orders

Jan, 22nd 19:20

U.S. stocks closed higher while the dollar weakened against a basket of currencies on Friday as Donald Trump became the 45th president of the United States. The Dow Jones Industrial Average snapped a five-session losing streak, finishing 0.48 percent higher, to 19,827.25. The S&P 500 added 0.3 percent, to 2,271.31 and the Nasdaq Composite rose 0.28 percent, to 5,555.33. This was the first time in more than 50 years that a new commander-in-chief has been welcomed by a rising equity market on his first day in office.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, dropped 0.31% to 100.79.

In his speech, Trump said U.S. policy will be to buy American and hire American, reiterating what he had said many times during this campaign for the White House. “From this moment on, it’s going to be America First,” Trump said. “Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength.”

Trump’s first executive order, which was signed hours after taking office on Friday, directs the federal government to scale back regulations, taxes and penalties under President Barack Obama’s healthcare law, the Affordable Care Act (ACA). The White House on Friday also announced that the U.S. will be withdrawing from the Trans Pacific Partnership and will look for renegotiating NAFTA.

With a light economic calendar next week, U.S. politics will draw market attention. There will be no major U.S. reports scheduled for release until goods trade balance, new home sales, Markit’s Services PMI come out on Thursday. Fourth-quarter GDP numbers, durable goods and revisions to the University of Michigan consumer sentiment index are due on Friday.

Euro marked its fifth consecutive week of gain on Friday. As expected, the European central bank on Thursday left monetary policy unchanged and President Mario Draghi stated that there was no convincing upward trend in underlying inflation. Although Draghi admitted that inflation increased lately and favorable conditions were preserved, he did not mention that the ECB were considering tapering its stimulus program. According to President Draghi, the QE might even be expanded if the outlook worsens as the “risks to the economic outlook remain on the downside.”

On Tuesday, the euro zone is to publish preliminary data on manufacturing and service sector activity for January after France and Germany release their own PMI reports. On Wednesday, market participants will be focusing on IFO survey data on German business confidence to gauge sentiment in the euro zone’s largest economy.

Sterling has also had a particularly good week versus the greenback. Despite the fact that Prime Minister May’s highly anticipated Brexit speech delivered a clear message of a hard exit for the U.K. to leave the EU, the pair GBPUSD soared to a two-week high. Although Britain will not be seeking partial membership for the EU and it won’t be participating in the single market, investors were relieved that the government will put the deal to a vote in Parliament.

In the week ahead, there will be no major U.K. economic reports scheduled for release outside of fourth-quarter GDP numbers and Bank of England Governor Carney’s speech on Wednesday.

On the contrary, Canadian dollar recorded its first week of decline with the sell-off sparked by the Bank of Canada’s talk of a rate cut. The Loonie experienced steep across-the-board losses last week after BoC Governor Poloz said a rate cut remains on the table amidst concerns over U.S. protectionism and excess capacity. In addition, while consumer prices dropped for a second month in a row, retail sales also missed expectations, rising only 0.2% in November against a forecast for 0.5% growth.

Elsewhere, data on Friday showed that China’s gross domestic product rose 6.8% in the fourth quarter of 2016, in line with expectations. Year-on-year, China’s economy grew at a rate of 6.8%, slightly above expectations for a growth rate of 6.7%. Chinese markets will be closed on Friday for a holiday.

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