Trump under the spotlights

Once again, Donald Trump is stealing financial markets’ attention as he announced yesterday he will give his final decision on the Iranian nuclear deal today at 2pm ET (20pm CET). The FX market doesn’t know where to stand this morning as the greenback extended gains against commodity currencies such as the CAD, AUD and the NZD (-0.75%, -0.55% and -0.25%) , while safe-haven ones, such as the JPY and CHF (+0.10% and +0.01%), held ground. It is also important to note that the Aussie is suffering ahead of the release of the federal budget. Indeed, the government is expected to announce details of its much-awaited tax break.

Crude oil is also experiencing higher volatility. After hitting $70.84 on Monday evening, the price of WTI erased gains and slid back to $69.84, down 1.25% on the day. Similarly, the Brent fell 0.90%, down to $75.50 as investors brace for a stormy trading session.

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Given the well-known unpredictability of the US President, it is difficult to make a prediction. Nevertheless, we think that the risk is mostly skew to the upside for the buck as there is a greater chance that he withdrawal from the nuclear agreement than he supports it. In addition, in the case he decides to extend the deadline for the decision, it would rather have a neutral impact on the current risk sentiment.

Swiss strength

While inflation in the EU slowed in April, in Switzerland it held steady at 0.80%, above its long-term average of 0.50%. Meanwhile, the CHF has softened against EUR and USD, which should boost exporters’ results going forward. Growth should excel, and boost the Swiss Market Index, which has languished in negative numbers since the beginning of the year (-4.61%). Unlike EUR/CHF sideways trading below 1.20, USD/CHF’s steep rise above the psychological barrier of 1.00 continues, heading to 1.0045 in the short-term.

In real terms, Swiss inflation remained lower, due to a deceleration in clothing, hotels and restaurants and recreation. With an April take-off in manufacturing (manufacturing PMI: 63.6, prior: 60.30) and a continued decline in unemployment, estimated at 2.70%, the Swiss economy remains on track for a strong step up in 2018, with GDP growth expected above 2% for Q1, boosted by strong export numbers since February.

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