Dollar decline without drama

Daily update

The US dollar has remained weaker, but has not declined significantly further. The dollar is not likely to lose reserve status overnight. However, the decline of the US internationally and international investors’ questions over key issues like rule of law mean it is losing market share. Moreover, as trade stagnates (and may retreat), reserve status becomes less important. International investors are not likely to flounce out of dollar assets in a dramatic exit, but may be less interested in accumulating additional dollar holdings.
US President Trump threatened an additional 25% cost to US consumers of South Korean imports. Markets had an initial negative response, then recovered ground—the absence of responsible officials reacting to the post undermines the credibility of the post (per Canada and Iran).
The UK BRC shop price index rose sharply in January on food prices. Non-food prices were more benign. Food and non-food retailers face the same tax and minimum wage increases—but UK food retailers do have a tradition of profit-led inflation (exploiting a narrative to increase margins with higher prices).
US consumer confidence data is likely to be distorted by politics. The ECB’s Nagel is going to demonstrate how hip, trendy, and cutting edge they are with a speech on the digital euro.