USD bears the brunt of Trump’s credibility gap – AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, points out that doubts over Trump’s capacity to provide leadership for the Republican-controlled Congress have been creeping into the market fueled by lingering allegations his campaign had links to Russia and its efforts to influence the USA 2016 election, and Trump’s shrill bombastic style including wild claims of wire-taps. 

Key Quotes

“The Russia rumors are set to hang over Trump for the foreseeable future as the FBI confirms an investigation has months to run.  Trump’s leadership faces a crucial test on Thursday – the House of Representatives vote on the healthcare bill endorsed by Trump.  Passage in the House is necessary to keep the USA equity market focused on Trump’s deregulation and tax policy agenda, and bolster Trump’s reputation as a deal-maker. The bill is reported to hang in the balance; passage will see a relief rally in US equities, bond yields, and the US dollar.”

“A vote against the bill may see a further significant fall in US equities, yields, and the US dollar.  Creeping Trump doubts have had a much bigger impact on US assets and the US dollar than other markets and currencies.  There has been relatively little broader contagion, with strong gains in dollar alternatives – JPY and gold, and only a mild fallout to emerging market equities and currencies.”

“A weaker Trump presidency in many ways poses less threat to global growth and trade. The global economic recovery has established a firmer footing and policy inertia in the USA may result in a stable albeit more moderate USA growth outlook.  Less Trump policy action may keep the Fed on a benign gradual policy tightening cycle, and see capital flow from expensive US equities to global asset markets.”