FX remains chief focus as investors await Trump and US GDP

The sharp drop in GBP/USD late in the previous session, provided some respite for the FTSE. The FTSE has been hammered over recent days as the relentless rally in sterling pulled the index to its lowest close since mid -December.  

Trump couldn’t resist weighing into the dollar debate on Thursday and in a rare move by a president spoke of his views of a strong US dollar. This was sufficient to pick the dollar up, causing GBP/USD an intraday drop of 1.8% on Thursday. However, the effects of Trump's comments appear to have been short lived and the dollar is once again over 0.5% lower and sub 89.00 versus a basket of currencies. Meanwhile, the pound has rallied over 1% on the back of GDP data. 

UK economy grew faster than forecast 

The UK economy grew at a rate of 0.5% in Q4 vs. Exp. 0.4%, this was its fastest pace of growth in 2017. On an annualised basis GDP came in at 1.5%. Whilst this was ahead of expectation for growth of 1.4%, it also marked a decline from the previous reading of 1.7%.  

Whilst the UK economy is growing significantly slower than its counterparts the US and the eurozone, it does seem to be on the right track. However, more clarification is needed over Brexit before we can expect to see any serious pickup in economic growth. Brexit uncertainty is holding back businesses and consumers and until there is a clear plan in place, the UK can expect to lag behind. 

After sterling’s rally this week, investors were looking for some hard data to provide confirmation of these post Brexit high levels and today’s GDP reading appears to be sufficient. GBP/USD is trading over 120 points higher immediately following the release, pushing the rate back up towards the target of $1.43. 

Will the dollar find its feet again? 

Today Trump is speaking at the World Economic Forum in Davos and there are some concerns that his protectionist America First policy could come across as excessive and damaging. Furthermore, after conflicting verse from the Trump administration over the desired level for the dollar and GDP data due later today, dollar traders are showing signs of caution.  

US data has been in short supply in recent sessions and the US GDP release is the most important update on the economic calendar this week. There is potential for a softer reading after retail sales and trade data has been marginally weaker. Should this be the case the dollar could sell off into the weekend. 

After a wild week this week, the dollar may find itself better supported next week as investors look towards the Federal Reserve monetary policy meeting for direction.