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Is dollar weakness the norm in the new abnormal?

| Posted by: Paul Donovan | Tags: Paul Donovan

  • President Trump's inaugural address has been interpreted as a retreat from America's global leadership role. The vehemence in his address is causing markets to reassess other parts of the campaign rhetoric as it seems candidate Trump is occupying the Oval Office with little moderation of tone.
  • UK PM May heads to Washington, with an economic focus on a possible post-EU exit trade deal. What a deal with "America First" might look like is not clear. Sterling may receive support on the idea of trade deals with the "English-speaking peoples" (the EU is 45% of UK trade).
  • The French Socialist Party primary was won by Hamon (who wants to tax robots and reduce the working week to 32 hours). Hamon now faces Valls in the second round. The Socialist Party lags in national opinion polls, but the primary may be seen as another instance of anti-establishment politics.
  • International investors tend not to understand domestic politics as well as domestic investors. The price of the dollar is driven by international investors; the price of the euro is driven by domestic investors (that is current account mathematics). International concerns about politics are more likely to weigh on the dollar than on the euro.