Greenback Edges Up as Yields Rise but Trump Policy Concerns Cap Gains

On Friday, the greenback inched up against the yen and euro, dragging away from recent slumps, but increased were capped as investors concentrated on a showdown between U.S. President Donald Trump and members of his own party over a new healthcare bill.

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On Friday, the greenback inched up against the yen and euro, dragging away from recent slumps, but increased were capped as investors concentrated on a showdown between U.S. President Donald Trump and members of his own party over a new healthcare bill.

Trump advised House Republican lawmakers that he will leave Obamacare in place and move on to tax reform if they do not get behind new healthcare legislation and support it in a vote on Friday.

Delay of the vote from Thursday initially hits the greenback  and stock markets, however, the greenback was given breathing space as Treasury yields become higher after Wall Street shares cut losses to close little changed.

Equities in Asia took heart and firmed on Friday, with Japan’s Nikkei (N225) increasing 1 percent.

“The dollar had been sold on the assumption that the healthcare bill would not pass, but some of those positions look to have been unwound. The market focus appears to have shifted to how Trump can pass the bill, from if he can push the bill through,” said Bart Wakabayashi, branch manager for State Street Bank and Trust in Tokyo.

“U.S. yields are higher and it’s not hard for dollar/yen to attract bids. It is often overlooked but the dollar continues to enjoy underlying support from widening U.S.-Japanese interest rate spreads.”

The greenback increased  0.35% at 111.340 yen, pulling back from a four-month low of 110.620 struck overnight.

“The U.S. currency was still on track for a 1.2% loss against its the yen this week, during which the safe-haven yen benefited from equity market volatility.”

The yen has also gained from a scandal linking a land agreement that has chipped away support for Prime Minister Shinzo Abe.

Although that may look counterintuitive, the yen has been a safe-haven of choice, even when risk events originate domestically.

When a shocking earthquake struck Japan in March 2011,  the currency rallied and caused a nuclear disaster, prompting an intervention by Tokyo to arrest its surge.

On Additional News

The healthcare vote, which had been projected to be an early legislative win for Trump, is perceived by investors as a litmus test for his ability to work with Congress and push through key policies like tax reform and infrastructure spending.

“Even if the bill happens to be passed, any bounce by the dollar is likely to be limited. There are plenty of other issues Trump has to contend with going forward, such as tax reforms,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

The pound declined 0.3% at $1.2490. It scaled a one-month peak of $1.2532 overnight on upbeat British retail sales statistics.

The Australian dollar decline to an eight-day low of $0.7610 following a drop in the price of iron ore, the country’s key export product.

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