US Dollar v Pound: US Fed Ahead, Trump Takes Another Shot at Obamacare Repeal

The Dollar has struggled thus far in 2017 amidst the failure of President Donald Trump to stamp his legislative agenda on the country and signs that the US Federal Reserve is in no rush to push interest rates higher at a faster rate than markets are already expecting.

With regards to both the above, traders will have further information to digest over the next 48 hours.

Firstly, a procedural vote is due on Tuesday as Trump seeks to repeal Obamacare with Trump issuing a challenge to Republican senators to rally behind his healthcare bill.

Reports however suggest that the shape of the Bill that will be put before lawmakers is unclear and this already poses problems for Trump.

Markets will want to see Trump win as this would communicate that he does have the ability to pass legislation and the prospect of lower taxes and increased public spending becomes a reality once more.

The Dollar rallied after Trump won the Presidential election in November 2016 as markets bet that Trump would stimulate growth in the economy with his policy agenda.

The currency has since fallen as it became clear passing lesgislation would not be easy.

Then there is the US Fed to watch mid-week.

"The general trajectory of Fed policy is on everyone's minds and few will argue that the most recent rate hike won't be their last even though Fed Fund futures show investors pricing in less than 50% chance of another rate hike before the end of the year," says Kathy Lien, Director at BK Asset Management.

For the past few weeks, US data has disappointed against market expectations and that's supped investor  confidence in the Dollar.

With no major economic reports scheduled for release before Wednesday's FOMC rate decision, investors could approach this week's meeting with scepticism.

“Unless the Fed announces a start to its balance sheet rundown in tomorrow’s FOMC announcement, it will be difficult for the dollar to change course,” says Richard Perry, an analyst with Hantec Markets. “A drastic Fed announcement in the absence of a Yellen press conference or economic projections remains an unlikely scenario, so selling the dollar into strength is likely to continue.”

The Fed is expected to maintain a positive outlook and a hawkish bias with regards to raising interest rates but Lien says the real uncertainty is whether the market believes them.

"As no hike is expected in September, December is a long time from now so investors will still be in show me mode - waiting for data to confirm the Fed's hawkish views before leveraging into long Dollar trades," says Lien.

This could allow GBP/USD to maintain recent ground but with sentiment so negative towards the Dollar don't be surprised if we see a decent rally on any positives coming out of the healthcare vote and the Fed meeting.

At the time of writing the Pound to Dollar exchange rate is quoted at 1.3033.

David Sneddon at Credit Suisse is optimistic on Sterling’s prospects in the near-term.

“GBPUSD has held key price, trend and 21-day average support at 1.2946/12 as expected, and has resolved its tight range topside above 1.3035.

“This leaves the immediate attention on 1.3058/62, above which should open up a test of the 1.3126 recent high,” says Sneddon.

However, other currencies might enjoy more success against the Dollar than Sterling which itself continues to suffer from soft sentiment.

As such, there are those who are a little more shy when it comes to Sterling's prospects against the Dollar in the near-term.

“Despite the trend being higher, with new highs set last week, the divergence and failure to hold onto gains leave this rate vulnerable in any USD strength phases. Support lies at 1.2920 with a break there opening a shift back towards 1.2815-1.2750 congestion below,” says Robin Wilkins at Lloyds Bank.