USD: Trump scales back China tariff threat - ING

Donald Trump's address in Davos yesterday included most of the threats related to implementing his America First vision - something markets are becoming accustomed to. Comments on oil prices and interest rates seemed to attract more headlines. Trump said OPEC should increase production to allow a decline in oil prices, which led to another leg lower in oil prices which have been under pressure since touching multi-month highs last week. The new administration plan is to drive down energy costs and by extension interest rates, ING's commodity analyst Warren Patterson notes.

Trump wants oil prices to go down

Trump also said that he will discuss with Federal Reserve Chair Jerome Powell his view on rates "at the right time", which probably suggests the government's pressure shouldn't be felt just yet when the FOMC meets next week. We expect a decision to hold rates steady next week will not be the trigger of another round of USD longs unwinding."

"Overnight, the dollar did however take a hit as Trump surprisingly told Fox News he'd rather not impose tariffs on China. This seems to feed into the growing sense that Trump is underdelivering on protectionism compared to pre-inauguration remarks, and that ultimately some of those tariff threats may not materialize as long as some concessions are made on trade."

"We would not be entirely surprised if Trump's next comments on the matter point in the opposite direction. But barring that, the dollar momentum may remain soft today. On the data side, watch for US S&P Global PMIs today - expectations are for a small recovery in the manufacturing index - and home sales data (the latter for December)."