Daily Kickstart (Fed, Dollar In Focus As Global PMIs, IPhones Boost Sentiment)

Quite a lot of people seem to be hanging their hats on Wednesday’s Fed statement when it comes to finding a reason to stay long the dollar.

Comments out Tuesday from Trump and his economic spirit animal Peter Navarro sent the broad dollar lower and USD/JPY went with it as the market tried to come to terms with an administration in which multiple actors seem prepared to verbally intervene in FX markets.

While traders took Navarro’s absurd attack on Germany in stride, if we’ve learned anything over the past week it’s that we shouldn’t underestimate Trump and his merry  band of halfwits when it comes to showing off their uncanny propensity to do and say dumb sh*t that moves markets.

When it comes to the Fed, conditions appear to be right for a hawkish lean in the statement – this week’s equity woes notwithstanding. After 2015’s December hike the dollar firmed and stocks plunged, tightening financial conditions and effectively short-circuiting liftoff. This time around it’s been largely the opposite dynamic. Between higher stocks, a weaker dollar, and decent incoming data, this would seem as good a time as any to hint that March is in play.

We’ve seen a lot of talk about substituting a bit of SOMA rolloff for one of 2017’s three “planned” rate hikes. The idea is that shrinking the balance sheet will be more dollar neutral than outright FF hikes. That serves two purposes, i) it pacifies the White House, where Trump is hell-bent on a weaker dollar, and ii) it at least shows the committee is making some effort to keep a lid on policy-induced dollar strength at a time when an excessively strong greenback could trigger a crisis in EMs that have borrowed heavily in dollars. Here’s Bloomberg’s Richard Breslow on the Fed meeting:

I can just imagine the conversation taking place in the Board Room of the Eccles Building. We’d like to be bold. We’d like to take more credit for the improvement in the domestic and global economies. It’s felt so good to talk boldly. But what if we’re wrong? With all this craziness going on, we have a patriotic duty to wait for more clarity. He’s never going to follow through with the things he said to get elected. Will he? Besides, we don’t want to take away the Chair’s maneuverability when she testifies on the 15th.