Fed trumps Trump

Trump 2 - 4 Dudley

Donald Trump was unusually conciliatory when he addressed Congress last night. He was also, however, longer on rhetoric than fact. So what could have been a compelling speech by the US president was overshadowed by William Dudley, the president of the New York Federal Reserve.

In an interview with CNN Mr Dudley said the recent economic data had made the case for a rate increase "a lot more compelling". As the ranking regional Fed chief on the Federal Open Market Committee Mr Dudley's words carry more weight than his peers. With that in mind, and in light of his usually dovish inclination, the comment led investors to infer that the Fed is doing its best to prepare markets for a rate increase in two weeks' time. Yesterday morning financial futures pricing gave a 50% likelihood to a March increase: that chance has now increased to 80%.

Consequently the US dollar delivered the joint-best performance on the day, adding two thirds of a cent against sterling. It shared the lead with the krona, which was helped by strong Swedish retail sales data and by a punchy 1.0% expansion of gross domestic product in the fourth quarter of 2016.

Making America great again

In his speech Mr Trump spoke of gleaming railways, massive military spending, border security and millions of new jobs. There is doubt, however, about where the money will come from, especially when tax cuts (which were not directly addressed last night) are factored in. It could therefore be a while until the economy feels the benefits of his strategy.

On its own Mr Trump's speech might have had a dampening effect on the dollar. But it wasn't on its own. Mr Dudley's remarks, and those of his colleagues in recent days, gave investors something else to pitch at. Their focus in the immediate future will be on the Federal Reserve and the decision it announces on 15 March.

Tuesday's US economic data did nothing to detract from expectations of an increase. House prices were up by an annual 5.6%, consumer confidence improved by three points to 114.8 and the Chicago purchasing managers' index jumped seven points to 57.4.

PMIs all round

As ever on the first of the month, the bulk of the day's ecostats will made up by purchasing managers' index readings, most of them from the manufacturing sector. There will also be plenty of other figures to fill in any gaps as well as a rate announcement by the Bank of Canada.

Overnight Australia reported a 1.1% expansion of GDP in the fourth quarter, which took the Aussie a third of a cent higher against the pound. Two of the three Chinese PMIs exceeded forecast while Sweden's manufacturing PMI came in at a healthy 60.9. Nationwide's index of UK house prices was up by 4.5% in the year to February.

Several more PMIs are yet to appear and tonight brings Australia's balance of trade figures.