USD: Central bankers' last seconds of fame? - Rabobank

Jane Foley, Senior FX Strategist at Rabobank notes, "In response to a question during his press conference on February 2 BoE Governor Carney stated that we are currently witnessing the “last seconds of the central bankers’ 15 minutes of fame”. Carney referred specifically to the impact of the loosening in fiscal targets in the UK’s Autumn Statement on the Bank’s forecasts.  More generally, however, Carney was describing a rotation away from the monetary policy being the “only game in town” to a new normal in which monetary policy takes a more reactionary role to changes in fiscal settings and trade policies."

Key Quotes

"Carney may be mandated to oversee the UK economy, but it doesn’t take much imagination to apply his reasoning to the US. The market’s reaction to the FOMC meeting earlier this week was unusually staid. This likely is related to the fact that Federal Reserve policy-makers, like everyone else, are enthrall to the comments and actions of President Trump."

"The rally in the USD in the final weeks of last year was based on the assumption that Trump would both increase fiscal expenditure and pare back regulation. It was assumed that this would accelerate growth and provoke the Fed into speeding up the pace of rate hikes this year." 

"At the end of the year, the FOMC indicated that it could hike three times. However, the minutes of the December policy meeting have already revealed how dependent the Fed’s rate outlook has become on the timing and impact of the policies of the Trump administration." 

"If the Fed are playing second fiddle to the remarks and actions of the new President, it follows that the potential market impact of this afternoon’s US jobs release may be eroded."

"Trump’s central stance on trade is to “negotiate fair trade deals that create American jobs, increase American wages, and reduce America's trade deficit”. In this environment, the GOP’s Ryan-Brady tax overhaul proposals are garnering fresh attention. Under this “border-adjusted” scheme, the exports of US corporates would not be taxed, only their imports." 

"It has been our expectation for some time that the USD would end 2017 on a weaker footing as enthusiasm regarding Trump’s policies ran out of steam. We retain a year-end forecast of EUR/USD1.10."

Payrolls only matter until Trump tweets