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As had been widely expected, President Donald Trump sounded an optimistic and conciliatory note in his first State of the Union address – but the speech contained less detail than one of his trademark tweets.

The President hinted at a more aggressive posture on trade – but stopped short of naming any specific agreements or countries. “America has also finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs, and our wealth”, he said, “Our nation has lost its wealth, but we are getting it back so fast. The era of economic surrender is totally over. From now on, we expect trading relationships to be fair. And very importantly, reciprocal. We will work to fix bad trade deals and negotiate new ones. And they’ll be good ones. But they’ll be fair. And we will protect American workers and American intellectual property, through strong enforcement of our trade rules”.

In devoting just 78 words out of more than 5,200 to trade, Trump left currency traders broadly unmoved. As we go to pixels, the Mexican peso and Canadian dollar are holding onto recent gains, and the Chinese renminbi remains in a holding pattern against its trade-weighted reference basket.

Ahead of the speech, the greenback had come under renewed selling pressure, unwinding yesterday’s gains as traders positioned ahead of what promised to be a less-combative speech from Mr. Trump – and with those expectations now confirmed, the dollar is dropping modestly against its developed-nation counterparts.

The President shed more light on his infrastructure plans, saying, “Tonight, I’m calling on Congress to produce a bill that generates at least $1.5 trillion for the new infrastructure investment that our country so desperately needs. Every federal dollar should be leveraged by partnering with state and local governments, and, where appropriate, tapping into private sector investment, to permanently fix the infrastructure deficit”.

Traders with a bearish bent are now squarely focused on the impact that a large spending programme could have on government borrowing and inflation, suggesting that today’s rise in fixed income yields could carry through into tomorrow’s session.

Bottom Line: President Trump’s platitude-heavy, teleprompter-assisted played well from a political perspective, but essentially provided a constructive backdrop for trends already at work in the currency markets. With last year’s inauguration speech providing historical context, we can expect the afterglow to last at least twelve hours – with Twitter-fueled volatility episodes to come shortly thereafter. After all, the Union is still in a state…

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