For global foreign exchange markets, there didn’t seem anything too troubling in either the tone or content of President Trump’s State of the Union address but such is the prevailing negative sentiment amongst analysts that the US Dollar went down anyway. The USD index stood at 88.90 when the President began but it was then downhill all the way until late afternoon in Europe where it finished at 88.52. The USD then began to rally ahead of the FOMC interest rate decision and by the time the Statement had been released and examined, the USD had regained all its earlier losses.
Putting two FOMC Statements side by side always feels a bit like the job the Kremlinologists had back in the Soviet-era when they’d look at a photograph of the Politburo and see who had moved a pace or two to the left or right, who was missing and who were the fresh new faces. The Fed said that, “the labor market has continued to strengthen and economic activity has been rising at a solid rate. Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent”. So far, pretty much exactly what was said in December. But, whereas last month inflation was expected to, "remain somewhat below 2 percent in the near term", this line has been dropped and instead, "Inflation on a 12 -month basis is expected to move up this year”. For choice, your author interprets this is a slightly more hawkish stance.
With the two political and monetary policy set-pieces of this week now out of the way, there’s a whole bunch of US economic data over the next two days. This afternoon brings the weekly jobless claims, both versions of the manufacturing PMI survey (Markit and ISM) as well as construction spending. Tomorrow is the first Friday of the month so it’s the non-farm payrolls and earnings numbers plus factory orders, durable goods and the Michigan consumer confidence survey. The Atlanta Fed will be updating its GDP forecast later this evening and the USD index opens in Europe today at 88.90.