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Dollar in focus ahead of Trump address.

Summary: US president will deliver his first State of the Union address on Tuesday

Siddesh Suresh Mayenkar, Senior Reporter

Dubai: The dollar index, which hit its lowest level in three years on Friday, will be closely watched this week as market participants look for any possible reference to the greenback in US President Donald Trump's first State of the Union address.

Last week witnessed conflicting remarks from the US president and his treasury secretary on the state of the dollar.

Treasury Secretary Steven Mnuchin said that a weak dollar was good for trade, while the Trump said the US "is becoming so economically strong again - and strong in other ways too, by the way - that the dollar is going to get stronger and stronger."

In his first State of the Union address on Tuesday, among other issues, Vaqar Zuberi, head of Hedge Funds at Mirabaud Asset Management does not expect Trump to "announce any deviation from previously announced policies during this week's State of the Union Address to the US Congress and investors will be keenly awaiting any mention of the dollar and trade agreements, with the latter likely to have greater impact on equities markets."

On Friday, the dollar index, which measures the greenback against a basket of six major currencies, was down 0.33 per cent at 89.1 and on track for a weekly fall of 1.6 per cent. The index saw its weakest level since 2015.

"[The] majority of the participants were not positioned for this sharp decline in dollar, and some stop losses were taken off. There are certain momentum indicators, which show oversold positions on the dollar. We expect a sharp reversal of 5 per cent from the lows," said a currency strategist based in Dubai who did not wish to be named.

Last week, the currency strategist positioned his client portfolio and funds for a dollar rally.


Analysts said that strong corporate earnings and the weak dollar continue to provide momentum to US equity markets.

The Dow Jones Industrial Average, which has been on a record-breaking spree, touched a new high at close of 26,616.71, up 0.85 per cent on the day.

The MSCI World Index, which tracks shares in 47 countries, registered its 10th week of gains.

"It has been an aggressive start because global growth coordination has been strong. Sometimes you can go too far and too fast. We can't expect this pace of gains to continue in a straight line. We may see some consolidation," said Saleem Khokhar, head of equities at First Abu Dhabi Bank Asset Management.

The Dow Jones Industrial Average has gained 7.68 per cent so far in the year.

A weaker dollar helped other greenback-priced assets such as oil and gold.

"Strong demand for crude oil and a drawdown in inventories, as well as a weak US Dollar, continue to provide momentum for crude oil prices. Over the short term, prices are likely to remain range-bound as investors await output levels from US shale oil producers," said Mirabaud's Zuberi.

Brent crude, the international oil benchmark, hit $71.28 (Dh261.81) a barrel on Friday, its highest since early December 2014.

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Publication:Gulf News (United Arab Emirates)
Date:Jan 28, 2018
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