The GBP/USD Rate Today: All Eyes on Trump's Address to Congress

Foreign exchange markets are seen keenly awaiting Donald Trump to address the US Congress on Wednesday, February 28 where it is expected the President will deliver further details on his economic policies.

Markets will be wondering whether Trump can trigger a notable move in GBP/USD which has been stuck in familiar territory for weeks now.

Pound Sterling remains caught in a range against the US Dollar that has been in place for six weeks now and markets will be wondering what that catalyst is that finally pushes the pair out of its sideways-orientated trend that centeres around the 1.2450 pivot.

“The UK currency very much in the midst of its recent trading range and there is currently little in the broader technical picture to suggest that a sudden break-out is imminent," says analyst Bill McNamara with brokers Charles Stanley. “That said, the slide in volatility over the last few weeks probably means that the likelihood of a sudden move has actually increased and, with that in mind, the levels to monitor are going to be 1.265 on the upside and 1.24 on the downside.”

Markets will be particularly interested in what his spending and tax plans look like as it is the anticipation of pro-growth policy that has driven stocks and the US Dollar higher since his November election victory.

Now is the time for details and depending on what is said we will find out whether or not the markets were right to have reacted in the manner they did to his win.

Not going far enough on tax cuts and pro-growth spending plans could leave the US Dollar under notable pressure.

Those wanting a stronger Dollar will need to hear concrete plans on corporation tax cuts and a potential Border Adjustment Tax which is essentially the introduction of tax barriers.

As we note here however, the administration has already given tentative details on plans for a massive boost to defence spending but these come at the cost of cuts elsewhere. Further, we note that boosting defence has a very poor stimulatory effect on the economy.

Nevertheless, markets are willing to give the President the benefit of the doubt for now.

On Monday, February 27 Trump hit the airwaves saying he would have a "big statement" on infrastructure, adding that "we're going to start spending on infrastructure big."

However, the Dollar didn’t react kindly to Trump’s admission that no major tax plans would be announced until his health plan costs are known.

He said health was “an unbelievably complicated subject. Nobody knew that health care could be so complicated."

Treasury Secretary Mnunchin has suggested that Trump is likely to address high level objectives of reform, rather than details.

"Given the details of tax reform are still being negotiated across the House, Senate and the Trump administration, we do not expect to learn much more about the likely direction of tax reform this week," says Lewis Alexander at Nomura.

When the president’s speech was announced shortly after the inauguration, markets expected Trump to use this address to fill in some of the details in his economic policy agenda.

"However, it appears that the administration’s process of developing the specific policy proposals has been slower than we expected. Presidential transitions always take time," says Alexander.

So there is a chance markets could be disappointed and the Dollar heads lower as more patience is required when it comes to delivering on detail.

"Investors hoping for clarity about US President Trump’s plans on tax reform and infrastructure spending may be disappointed by his speech tonight," says a foreign exchange briefing from UniCredit Bank. "While the president may provide some additional guidance, he is unlikely to reveal any specific details, let alone a comprehensive fiscal programme."

UniCredit believe that without clarity on the size, shape and timing of his “phenomenal” plans, the market will become impatient and the USD will see major headwinds.

Disappointing Data Tampers Fed Expectations

The USD weakened at the start of the week following the release of softer-than-forecast pending home sales and core durable goods orders.

The US Census Bureau reported that core durable goods read at -0.2%, markets had forecast an increase of 0.5%.

Pending home sales meanwhile read at -2.8% where analysts had forecast a reading of 0.8%.

The data suggests the US economy may be slowed a tad at the start of the new year has lead markets to further doubt that the US Federal Reserve will rush into an interest rate rise in March with expectations currently evenly poised at 50%.

Fading expectations for a March hike will likely keep the Dollar offered.