During the final quarter of 2016 the US economy failed to live up to its strong performance from the rest of the year as GDP showed a fall from the expected 2.2% to 1.9%. GDP rose at 1.6% which was the slowest in five years and part of the reason was due to the slowdown in exports which could be attributed in my opinion to the strong Dollar vs both the Euro and the Pound.

The next estimate will come on 26th February and is usually more accurate as Friday’s figures were based on incomplete data. With the new President Donald Trump now in power and his focus on the domestic market we are in for an interesting time ahead. There is optimism in the market with the Dow Jones hitting record highs last week following Trump’s inauguration but over the weekend Trump has proved we could in for an unknown and volatile period ahead.

Trump and immigration

Donald Trump has signed an executive order, which has put a stop to the entire US refugee programme, which involves banning nationals entering the US from seven different countries. This has caused travel chaos for some being detained at airports even though they have valid papers. Trump was quoted that ‘its working out very nicely. You see it at the airports, you see it all over.

Many other world leaders have spoken out against Trump including German Chancellor Angela Merkel and Theresa May. Both have said they don’t agree with the restrictions and this could cause relations between the US and other world leaders to go frosty.

Trump has also ordered his Defense Secretary to come up with a plan to defeat Islamic State within 30 days. The President is clearly trying to gain the backing and support from some American voters with these proposals but in reality it will be extremely difficult to work. I think the impact this will have on the US Dollar could be negative as if Trump continues to rile his foreign counterparts this could have a negative impact on trade relations. Having said that the talks between Theresa May and Trump appeared to go well last week.

On Wednesday the focus turns back to economic data when the Federal Reserve hold their next meeting to discuss interest rates. With GDP showing a small drop then I think there is becoming less likelihood in the near term of another interest rate hike coming and I think we could see the Dollar weaken vs Sterling sending GBP/USD rates in an upwards direction towards the end of the week.

Further US Dollar weakness could emerge from Trumps controversial orders, and those with a US Dollar requirement may benefit from speaking with one of our team on 01494 725 353 or by emailing me here.

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