Yellen to wait for “action not words” from Trump

President Donald Trump received a small crumb of comfort yesterday as the Senate voted in favour of the repeal of Obamacare. Now all he needs is a practical alternative and he can get back to “putting America First”

The dollar index which is languishing at close to sixteen-month lows shows little sign of recovery and it is unlikely to receive support from today’s FOMC meeting. Janet Yellen is not going to provide too much in the way of advance guidance other than to, possibly, mention the shrinking of the Fed’s balance sheet.

The $4.5 trn balance sheet was the result of quantitative easing where the Fed bought Government securities to add liquidity to the market. This, so-called , “printing of money” was supposed to bring on raging inflation but, so far, no sign has been seen.  

The dollar despite being in oversold territory is receiving very little support in the market. It is entirely possible that Trump will feel that the currency is reflecting a more sensible value having spoken earlier in the year of currency manipulators (including Germany) using monetary policy to drive their currencies lower to improve export demand.

The dollar index last traded at 94.16 having clambered away from the 93.64 low seen yesterday.

U.K. matching Germany over factory output

Two unrelated surveys released yesterday showed that economic output in the U.K. and business confidence in Germany both reached record highs. In the U.K. The Confederation of British Industry confirmed that in the three months to June factory output was at levels not seen since the min-nineties.

German business confidence has been described as “euphoric”. However German business leaders called upon Angela Merkel to ensure that Brexit negotiations run monthly. Delays could be critical to those planning to continue to trade with the U.K. following the split.

The pound and Euro, having both corrected against the dollar, have both resumed their upward path. The pound above 1.3000 is a major psychological metaphor for continued strength. It represents a 12.5% rebound from the recent lows.

Interest rate hikes are some way into the future for both economies with the Bank of England preferring to keep rates low to provide some defence against any unwelcome Brexit headlines.

Political worries continue to hurt the pound. Three major “brexiteers” are overseas hyping U.K. potential post-Brexit. Messrs Fox, Johnson and Davis are in Mexico, Australia and Germany talking to industry and business leaders about the U.K. Government’s vision of the future, despite what Frankfurt may think or do.

Former Colonies to be at trade forefront

Ever bullish, Dr. Liam Fox, the Trade Minister is promoting a trade agreement with the U.S. as sooner rather than later as the partners plot for a world after Brexit.

The significance of the relationship cannot be overstated in any way. The same cannot be said of the EU where conspiracy, intrigue and self-interest provide salvation.

Canada, Australia and New Zealand can expect to be the beneficiaries of Brexit trade deals. New Zealand having both a limited product range and a limited market have suffered quite badly from Britain’s membership of the EU. Their ability to sell high quality dairy and meat products has become gradually more difficult.

The AUD, CAD, and NZD should see positive reaction as their traditional markets return.

From an EU perspective, several major German heavy industry businesses have voiced concerns to Angela Merkel about delays in Brexit since they want things settled as soon as possible to ensure continuity.

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