Powell inauguration to set long-term trend

The major influences on the dollar once the market returns in January from the Christmas and New Year celebrations will be the final cut of the tax reform bill and the effect of the new Chairman on the outlook of the Federal Reserve.

When Jerome Powell takes over as Chairman of the Federal Reserve on February 3rd, traders will be able to reasonably expect that he will be in situ until at least 2026.

Most Chairmen serve two terms, which makes Janet Yellen’s single term an exception but having been in charge during an almost one-hundred-and-eighty-degree reversal in Government it was only to be expected that there would be“casualties”.

History will judge her performance, but her term in office will be characterized by a shift to greater guidance to markets about the Fed’s thinking on monetary policy. This has not always been helpful as, particularly over the most recent rate hike, there was an element of “painting herself into a corner”. Having taken over following a more charismatic Chairman, Mrs Yellen faced the twin challenges of withdrawing stimulus without harming a to growth. This has been managed very well causing the President to flip flop from demanding the faster withdrawal of stimulus to calling for rates to be kept lower for longer to help the economy.

Government facing another Brexit defeat before Parliament rises

Emboldened by their success in forcing a “meaningful” Parliamentary vote on the Brexit agreement, rebel Conservative MP’s are likely to inflict a further defeat on the Government when they vote against the inclusion of the final Brexit date in the Brexit legislation.

While this is a minor issue, it will do two things. It marks out those rebels willing to take a stand against Mrs May and illustrates concerns that as more important issues are debated Mrs May could face defeats that could lead to a challenge to her leadership and a vote of confidence in the House of Commons, which could ultimately lead to a General Election.  

Sterling ranges have started to narrow as traders close their books for year end. It managed to claw back some of Fridays losses versus both the greenback and single currency. Following a reasonably stable H2, the Euro is likely to face political headwinds in the New Year as the focus of the new Austrian Government is clarified, the terms of Mrs Merkel’s new coalition are announced, and Italy prepares to go to the polls. The Eurozone economy continues to do well but inflation concerns, fanned by the Bundesbank, will start to rise and any move towards the ECB’s 2% target will commence calls for the raising of rates and the removal of accommodation.

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US GDP to provide the final action

Fridays release of final Q3 GDP data in the United States will provide the final act the market in 2017. Next week will be shortened by the Christmas holidays and only those who must trade, will!

GDP is likely to be unchanged from the final preliminary release with growth. rising by an entirely respectable 3.3% year on year.

The dollar index, which has seen roller-coaster progress throughout the year will end 2017 significantly lower than where it started. President Trump will, probably, hail this as a success, and proclaim that his policy of not allowing America’s trading partners to take advantage of a strong dollar to be working.

The reality is somewhat different. Trump’s first year has been characterized by a series of badly thought out pronouncements and policies. The most bizarre of there was probably the withdrawal from the Paris accord on climate change which was as inexplicable as it was ill-conceived.

Trump is expected to announce his next major policy which stems from his “America First” doctrine, in which he will criticize both China and Russia for their undue exertion of global influence. Cue another North Korean missile test?

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