The dollar
steadies after a stumble on President Donald Trump’s protectionist talk,
and after an initial dip the pound was riding out the UK court ruling
on Brexit..........
London — The dollar steadied on Tuesday, recovering from a
dip on fears that US President Donald Trump putting protectionism
before fiscal stimulus suggested his administration might be content to
gain a competitive advantage through a weaker currency.
Trade-war talk came in the face of more data pointing to a revival in activity worldwide. A Japanese factories survey showed the fastest expansion in nearly three years, as French business activity hit a five-and-a-half-year peak.
European stocks gained 0.3% as the upbeat data combined with a two-and-a-half-year high in commodity stocks and on a 1% jump in Italian stocks with a deal to merge two of its banks.
They made additional ground as Britain’s top court ruled that the government must get parliamentary approval to start the Brexit process, but the assemblies of Scotland, Wales and Northern Ireland would not have to give assent.
Sterling dipped briefly, but it was soon riding out the court ruling on parliament’s prerogative to pull the Brexit trigger. The euro and sterling had already been pushed back by the dollar as it clawed back from an overnight tumble that took the dollar index below the 100 point threshold.
"Most of the PMIs around the world have been quite strong so there is no bad news here, but the protectionism above stimulus story (from Trump) has given the dollar bulls reason for pause," said Saxo bank’s head of FX strategy, John Hardy.
"The dollar rally needs to find some support pretty soon otherwise we are facing a potentially serious correction." Sentiment had taken a knock on Monday when US treasury secretary nominee Steven Mnuchin told senators that he would combat currency manipulation but would not give a clear answer on whether he thought China was manipulating its yuan.
Trade-war talk came in the face of more data pointing to a revival in activity worldwide. A Japanese factories survey showed the fastest expansion in nearly three years, as French business activity hit a five-and-a-half-year peak.
European stocks gained 0.3% as the upbeat data combined with a two-and-a-half-year high in commodity stocks and on a 1% jump in Italian stocks with a deal to merge two of its banks.
They made additional ground as Britain’s top court ruled that the government must get parliamentary approval to start the Brexit process, but the assemblies of Scotland, Wales and Northern Ireland would not have to give assent.
Sterling dipped briefly, but it was soon riding out the court ruling on parliament’s prerogative to pull the Brexit trigger. The euro and sterling had already been pushed back by the dollar as it clawed back from an overnight tumble that took the dollar index below the 100 point threshold.
"Most of the PMIs around the world have been quite strong so there is no bad news here, but the protectionism above stimulus story (from Trump) has given the dollar bulls reason for pause," said Saxo bank’s head of FX strategy, John Hardy.
"The dollar rally needs to find some support pretty soon otherwise we are facing a potentially serious correction." Sentiment had taken a knock on Monday when US treasury secretary nominee Steven Mnuchin told senators that he would combat currency manipulation but would not give a clear answer on whether he thought China was manipulating its yuan.
In reply to the US Senate finance committee, Mnuchin also
reportedly said an excessively strong dollar could be negative in the
short term.
The dollar duly skidded as far as ¥112,52, breaking last week’s trough and the lowest since late November. Its 1.7% drop on Monday was the largest since July 29 though it had recovered to stand at ¥113,21 by 10.15am.
While Trump promised huge reductions in tax and regulation on Monday, he also formally withdrew from the Trans-Pacific Partnership (TPP) trade deal and talked of border tariffs.
"It’s interesting that markets did not respond positively to a reaffirmation of lower taxes and looser regulation, reinforcing the impression that all the good news is discounted for now," said ANZ analysts.
"As week one in office gets under way, there is a growing sense of scepticism, not helped by the tone of Friday’s inaugural address and subsequent spat with the media." Doubts about fiscal stimulus had helped Treasuries rally. Yields on 10-year notes steadied at 2.42% in European trading after the steepest single-day drop since January 5 on Monday.
Two-year yields were about 1.16%, narrowing the dollar’s premium over the euro to 183 basis points from a recent top of 207 basis points.
The recent drop in the dollar boosted industrial metals including copper and iron ore, while gold was near two-month high at $1,212 an ounce.
Oil prices edged up as signs that Opec and non-Opec producers were on track to meet output reduction goals largely overshadowed a strong recovery in US drilling.
US crude futures added 45c to $53.19 while Brent crude eased 50c to $55.71 a barrel.
Reuters|BDlive
The dollar duly skidded as far as ¥112,52, breaking last week’s trough and the lowest since late November. Its 1.7% drop on Monday was the largest since July 29 though it had recovered to stand at ¥113,21 by 10.15am.
While Trump promised huge reductions in tax and regulation on Monday, he also formally withdrew from the Trans-Pacific Partnership (TPP) trade deal and talked of border tariffs.
"It’s interesting that markets did not respond positively to a reaffirmation of lower taxes and looser regulation, reinforcing the impression that all the good news is discounted for now," said ANZ analysts.
"As week one in office gets under way, there is a growing sense of scepticism, not helped by the tone of Friday’s inaugural address and subsequent spat with the media." Doubts about fiscal stimulus had helped Treasuries rally. Yields on 10-year notes steadied at 2.42% in European trading after the steepest single-day drop since January 5 on Monday.
Two-year yields were about 1.16%, narrowing the dollar’s premium over the euro to 183 basis points from a recent top of 207 basis points.
The recent drop in the dollar boosted industrial metals including copper and iron ore, while gold was near two-month high at $1,212 an ounce.
Oil prices edged up as signs that Opec and non-Opec producers were on track to meet output reduction goals largely overshadowed a strong recovery in US drilling.
US crude futures added 45c to $53.19 while Brent crude eased 50c to $55.71 a barrel.
Reuters|BDlive
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