Trump's endorsement for USD - Rabobank

The Polish zloty, the Hungarian forint and the Czech koruna extended their year-to-date gains versus the US dollar after ECB President Draghi refrained from pushing hard against strong euro sending EUR/USD to the highest level since the end of 2014, explains Piotr Matys, EM FX Strategist at Rabobank.

Key Quotes

“That said, following the sharp euro’s appreciation the ECB reintroduced the phrase in its official statement that “recent volatility in the exchange rate represents a source of uncertainty.” While during the press conference Draghi avoided to provide an explicit answer when asked about potential implications of firmer euro on inflation, Reuters reported that the Governing Council was split on the next policy move due to stronger than anticipated currency. “The euro rise is a very serious matter,” one of the sources told Reuters.” 

“Perhaps more interesting were remarks from President Trump who declared that he is in favour of a stronger USD: “Our country is becoming so economically strong again and strong in other ways too, by the way that the dollar is going to get stronger and stronger and ultimately I want to see a strong dollar." Trump also claimed that comments from US Treasury Secretary Mnuchin that “a weaker dollar is good” for the economy were taken out of context.”

“Endorsement from President Trump provided the battered US dollar with some respite. But, the market sentiment towards the greenback is so negative that our conviction that a corrective rebound in USD/CEEMEAs might unfold in Q1 has faded since the beginning of the year.” 

“With USD/CEEMEAs breaching important technical levels on the downside and the DXY Index plunging below long-term trend line support, our short-term bullish view on the USD versus the CEEMEA currencies is being seriously challenged. We may have to revise it in the coming weeks if we do not witness signs of improvement in technical indicators relatively soon.”