Dollar Continues To Slump, Sinks To 10-Month Lows

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The U.S. dollar continues to slump as it sank to 10-month lows against the other major currencies on Tuesday, after an attempt to pass healthcare reform collapsed and amid a sell-off ignited by another setback to U.S. President Donald Trump’s agenda and doubts over prospects for another rate hike this year.

Greenback Sinks Against Major Currencies

The U.S. dollar index against a group of six major currencies was 0.64% lower at 94.31, the lowest trough since September 9, 2016.

The dollar was at almost three-week lows, weaker against the yen, with USD/JPY down 0.55% to 112.00, after falling as low as 111.99 overnight.

The euro rose to fresh 14-month highs against the dollar, with EUR/USD advancing 0.86% to 1.1577, after touching overnight highs of 1.1538.

Sterling was lower, with GBP/USD down 0.26% to 1.3022 after data showing that the annual rate of inflation in Britain fell for the first time since October last month.

Healthcare Issue and Rate Hike

The dollar came under renewed selling pressure after a second attempt by Republicans to replace Obamacare collapsed late Monday, bringing a major policy blow to the Trump administration.

Around half of the cuts in healthcare spending were reserved to finance proposed tax cuts. The failure to deliver healthcare reform added to disappointment over the lack of progress on Trump’s economic agenda.

The dollar was already on the defensive side after Friday’s weak U.S. inflation and retail sales data that  added to doubts that the Fed will be able to raise interest rates again this year.

Other Currencies

Elsewhere, the Australian dollar jumped to two-year highs, with AUD/USD,  adding 1.59% to trade at 0.7926, after the minutes from the central bank’s last policy meeting showed it turning more positive on the economic outlook.

The New Zealand dollar was also higher, with NZD/USD rising 0.61% to 0.7364. The kiwi initially turned lower overnight before regaining ground after weak inflation data indicated that the country’s central bank will keep interest rates on hold for longer.

The Canadian dollar hit fresh 14-month highs, with USD/CAD last at 1.2624.

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Pound Dives After UK Election Upset

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Britain’s pound took a battering dive on Friday, staying at its two-month lows, after Prime Minister Theresa May’s Conservative Party lost its parliamentary majority in elections, plunging the country into potential political chaos days before the start of Brexit negotiations.

Sterling fell 1.6% to $1.2748 after sliding as much as 2.5% to $1.2636 in early European trade , its weakest level since April 18.

With no clear winner emerging from Thursday’s election, Prime Minister Theresa May was fighting to hold on to her job on Friday as she faced calls to quit after her election gamble to win a stronger mandate she had sought to conduct exit talks with the rest of the European Union failed, leaving no single party with a clear claim to power just 10 days before the start of negotiations on Britain’s divorce from the European Union.

Lee, Hardman, a currency strategist in London, said the market wants more clearness now as far as who will be the next Prime Minister, what kind of form will the government take and eventually how all that feeds through into upcoming Brexit negotiations are concerned.

“In the near term the increased political uncertainty and the risk of more disorderly Brexit negotiations should enforce pound weakness.”

The surprise of a result that raised questions about how Britain will go on with its plan to leave the EU, and whether any party can form a stable government, sent the pound to eight-week lows against the dollar and its lowest levels in seven months versus the euro.

After falling sharply on an exit poll released when polls closed at 21:00 GMT, which showed Britain was set for a hung parliament, the pound had steadied a little in Asian trading. However, it fell sharply again as London traders arrived at their desks, as it became clear that no party had won a majority.

Another currency strategist in London, Viraj Patel, said that the pound’s nightmare scenario would always be the failure to have a safe political stability and the result of a hung parliament.

“Hopes that political uncertainty would decrease substantially under a more stable Conservative government…(have) been all but dashed,” said Patel.

“With the two-year Article 50 clock ticking, the passage of time is sterling-negative,” he added, referring to the formal Article 50 process by which Britain is set to leave the EU. “A working government is needed as soon as possible to avoid a further drop in the pound.”

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Pound Sags After Deadly Manchester Explosion

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Sterling slipped on Tuesday after a suspected suicide attack killed at least 22 people and wounded 59 at a pop concert in the English city of Manchester.

Sterling eased 0.1 percent to $1.298, extending Monday’s 0.3 percent loss. The pound dropped 0.3 percent to 144.34 yen, after losing 0.2 percent on Monday.

The attack came up just two-and-a-half weeks before an election that Prime Minister Theresa May is expected to win easily, though polls showing that the contest was tightening put the sterling under pressure.

At least 22 people were murdered in a suicide bombing at a pop concert by U.S. singer Ariana Grande along with children in the northern English city of Manchester. Fifty-nine (59) others were injured in the attack carried out by a suicide bomber, who died after detonating an improvised explosive device.

If the attack on the concert is confirmed as a terrorist attack, this would be the worst and deadliest attack in Britain by militants since four British Muslims killed 52 people in suicide bombings on London’s transport system in July 2005.

“This has been the most horrific incident we have had to face in Greater Manchester and one that we all hoped we would never see.” said Hopkins. “We have been treating this as a terrorist incident and we believe, at this stage, the attack last night was conducted by one man. The priority is to establish whether he was acting alone or as part of a network.”

Euro At Six-Month High

The euro hit a six-month high overnight after German Chancellor Angela Merkel said it was “too weak” due to the ECB’s monetary policy, pointing out that this helped explain Germany’s relatively high trade surplus.

The common currency jumped 0.1 percent to $1.1249 after jumping as much as 0.5 percent and closing 0.3 percent higher on Monday.

Junichi Ishikawa, a senior FX strategist in Tokyo, said that Merkel’s comments boosted the euro and so the weakened dollar is not essentially a bad thing for Trump.

The chancellor’s comments delivered fresh momentum to the euro, which has been on a bullish footing since the French presidential elections earlier this month. Upbeat euro zone data and a widening spread between the 10-year German and U.S. government bond yields have also supported the currency.

Moreover, The safe-haven yen advanced against major peers like the dollar and euro but its gains were modest.

The dollar was barely down 0.09 percent at 111.14 yen after a dip to 110.860 but the euro rallied 0.03 percent to 125.12 yen.

The dollar index, which tracks the greenback against a basket of trade-weighted peers, was 0.1 percent lower at 96.80.

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Greenback Pressured Ahead of Trump-Xi Summit, North Korea Concerns

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On Wednesday, the greenback lost its grip on prior gains against the yen, remaining under pressure after North Korea fired a ballistic missile into the sea in advance of a summit between U.S. and Chinese leaders.

Just a day before U.S. President Donald Trump and his Chinese counterpart Xi Jinping meet for talks on economic and security issues, Pyongyang’s test-fire came and will include persuading North Korea to curb its arms development.

However the perceived safe-haven Japanese currency tends to gain in times of geopolitical tension or risk aversion, the greenback got some support from Japanese importers on a “gotobi” date – the fifth day of the month and dates that are multiple of five- on which accounts are traditionally settled.

“Today, there is real demand for the dollar, on ‘gotobi,’ so its downside should be limited,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

However,  the concerns regarding the approaching China-U.S. summit undermined the dollar, which is also under pressure from increasing speculation that Trump will face challenges implementing his promised growth-boosting policies in the wake of his administration’s failure to pass healthcare reform.

“People want to wait and see how Trump can carry out his promises when it comes to infrastructure” and tax reform, Ogino added.

The dollar inched down 0.1% to 110.64 yen , off from a session peak of 110.92 and well below last Friday’s 10-day high of 112.19 yen.

The dollar index, which tracks the U.S. currency against a trade-weighted basket of six peers, declined slightly on the day at 100.52 (DXY), as falling U.S. Treasury yields also gave investors little incentive to buy the dollar.

The benchmark U.S. Treasury yield touched its lowest levels since February in overnight trade. It last stood at 2.349% (US10YT=RR) in Asian trading, not far from its U.S. close of 2.350%. It had been trading at levels above 2.40% as recently as Monday.

Yields inched down as investors pursued safety, even as investors expect additional  interest rate increases by the Fed Reserve this year.

On Tuesday, solid  U.S. data reinforced those expectations, indicating the country’s trade deficit dropped more than expected in February, while separate figures indicated factory orders increased for the 3rd straight month.

The previous week, Trump ordered a probe of the causes of U.S. trade deficits and tough measures for countries that evaded import duties.

“The foreign exchange market’s main focus remains whether or not Trump can carry out his policies, and whether the U.S. economy will stay strong enough for the Fed to stick to the path of rate hikes,” said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings.

“Therefore, this week’s U.S. jobs figures are still very important,” she said.

Economists polled predict the U.S. economy will have added 180,000 jobs in March, according to the report.

Meanwhile, the euro inched up a little to $1.0674 after plumbing a three-week low of $1.0636 on Tuesday.

The Australian dollar also sneaked higher to $0.7564 , dragging away from a three-week low of $0.7545 hit in the prior session when investors pared bets that the Reserve Bank of Australia would increase rates this year.

On Tuesday, Australia’s central bank held rates steady for an eighth month as generally expected, but expressed concerns over increasing property prices and weak employment situations.

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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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Greenback Nudges Up on U.S. yields, Euro Retreats From One Month Peak

On Tuesday, the greenback edged up against a basket of currencies as U.S. Treasury yields extended their increase in advance of an expected interest rate increase by the Fed Reserve.

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On Tuesday, the greenback edged up against a basket of currencies as U.S. Treasury yields extended their increase in advance of an expected interest rate increase by the Fed Reserve.

The euro pulled back from one month peaks after dovish sounding remarks from European Central Bank officials tempered its recent increase.

With a rate increase already perceived as a done deal, investor concentration was on what kind of a message the Fed Reserve would deliver after its two-day meeting starting later on Tuesday.

“The latest rise in Treasury yields is underpinning the dollar, but it is a wait-and-see mood that is mostly prevailing in the market ahead of the Fed’s decision,” said Shin Kadota, senior currency strategist at Barclays (LON:BARC) in Tokyo.

“Expectations for a hawkish dot plot was a factor that has pushed up the dollar recently, with hopes for the number of times the Fed could hike rates this year having increased to four from three.”

The “dot plot” is policymakers’ rate projections and provides a view into their interest rate outlook.

The dollar index against a group of major currencies (DXY) increased  0.1% at 101.410, adding to modest gains made the previous day.

Having gone to 115.510 on Friday, the U.S. currency was steady at 114.850 yen,  its highest since Jan. 19.

The euro was effectively flat at $1.0651.

On Monday, the  common currency had increased to a one-month peak of $1.0714, increased after some members of the ECB’s Governing Council talk over the possibility of higher interest rates at the previous week’s policy meeting.

But its increase was tempered later on Monday after European Central Bank (ECB) Governing Council member Jan Smets reportedly said the previous week’s policy meeting was not an indication of approaching policy change. Bank of France Governor Francois Villeroy de Galhau also stated increasing inflation in the euro zone was extremely exaggerated.

Caution in advance of the upcoming elections in Holland also capped the euro. On Wednesday, the Dutch will vote  in an election that was seen as a test of anti-immigrant sentiment.

“The market faces a series of event-related risks. It’s hard to predict whether that would be the Dutch elections, the Fed policy decision, (U.S. President Donald Trump’s) budget proposal or the G20 meeting, but the dollar faces significant downside risks,” said Masashi Murata, senior strategist at Brown Brothers Harriman in Tokyo.

Murata added that latest expectations for four U.S. rate increases this year considered excessive, and that the Fed Reserve meeting could help calm exaggerated policy tightening expectations.

On Thursday, the Trump administration’s fiscal 2018 federal budget plan will be released, and then on Friday,  G20 finance ministers and central bankers will meet in Germany.

Sterling was a touch lower at $1.2200, its increased overnight stalling after parliament passed a legislation giving British Prime Minister Theresa May the power to start the European Union  exit process. Theresa May has now cleared the final obstacle standing between her and the beginning of the divorce talks.

The pound had surged 0.4% overnight after Scotland’s First Minister Nicola Sturgeon demanded a fresh Scottish independence referendum, however, stated it should take place at the earliest in late 2018.

The Australian dollar declined 0.15% at $0.7561, giving back some of the previous day’s gains made when the greenback  fell against the euro.

The 10-year U.S. Treasury note yield (US10YT=RR) was at 2.616% after increasing overnight to 2.628%, its highest since mid-December.

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Forex: Yen Indicated Strength Ahead of Core Machinery Orders

In Early Asia on Monday, the yen indicated a touch of strength ahead of core machinery orders as the Forex market gears up for what key central bank policy analyses and a possible formal announcement from Britain on plans to exit the European Union.

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In Early Asia on Monday, the yen indicated a touch of strength  ahead of core machinery orders as the Forex market gears up for what key central bank policy analyses and a possible formal announcement from Britain on plans to exit the European Union.

The U.S. dollar index, which gauges  the greenback’s strong point against a trade-weighted basket of six major currencies, was last cited at 101.38. On March 10 it reached 101.17, its lowest since February 28, during disappointment that wages in the U.S. only grew slowly.

In Japan, core machinery orders for January are set with a 3.3% decline seen YoY and a 0.5% increase expected month-on-month. USD/JPY was last quoted at 114.79, down 0.01%.

AUD/USD was last quoted at 0.7543, increase 0.01%. GBP/USD starts what could be a momentous week off at 1.2165, down 0.04%.

In the week onwards,  global financial markets will be busy with central bank meetings, with policy decisions set in the U.S., Japan, the U.K and Switzerland. Investors will also look out very carefully for headlines coming out of a two-day meeting of G20 central bankers and finance ministers in Germany for additional indications on the strength of the global economy and the future direction of monetary policy.

The previous week, the U.S. dollar retreated against a basket of the other major currencies on Friday, after the current U.S. employment report indicated that job growth beat expectations, but wage development stayed tepid.

The U.S. economy added 235,000 employments in February from the previous month, as the construction sector recorded its biggest  gain in almost  10 years due to unexpectedly warm weather, the Labor Department said Friday.

In January, the unemployment rate marked down to 4.7% from 4.8%, even as more people hurried into the labor market.

However, average hourly earnings increased just 0.2% in February from a year before, below expectations for a 0.3% increase. The small gain, boosted the YoY increase in earnings to 2.8%, disappointing some investors.

U.S. short-term interest rate futures slightly changed following the employment report, according to the report,  underscoring the likelihood that the U.S. central bank will increase rates in the coming week and two more times in 2017.

The euro soared late on Friday, after a report surfaced that the European Central Bank had discussed the probability of introducing a rate hike before the end of its quantitative easing program.

The report came fresh off the heels of a rather hawkish remarks from ECB President Mario Draghi at the bank’s post-policy meeting press conference on Thursday. Mr. Draghi said “there is no longer that sense of urgency” for the central bank to use ultra-loose monetary policy to attain its mandates.

It was confirmed by U.K. Prime Minister Theresa May during a press conference in Brussels that Britain would start exit negotiations with the EU by the end of this month.

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