US dollar sinks to 7-week low on uncertainty caused by Trump

PUBLISHED : Tuesday, 24 January, 2017, 6:45am
UPDATED : Tuesday, 24 January, 2017, 6:45am

The dollar slumped to a seven-week low against a currency basket on Monday, weighed by concerns about the early days of US President Donald Trump’s administration that have so far been marred by protests, a protectionist inauguration speech, and angry comments on Twitter.

The safe-haven yen has been the main beneficiary of US political uncertainty, rising for a second straight session against the dollar. The yen has gained nearly 3 per cent since the start of the year.

Trump’s “America first” message was followed over the weekend by coordinated protests in US cities, testy exchanges between members of his top staff and media and confirmation that key trade pacts were heading for the shredder.

All these fed uncertainty about the direction Trump’s policy will take and pointed to a bumpy few months ahead for the new president.

In late trading, the dollar index, which measures the greenback against six major rivals, fell 0.6 per cent to 100.16 led by 1.4 per cent drop versus the yen to 113.01 yen. The dollar’s fall against the yen was the largest in more than two weeks.

“There is general unease after Trump’s very aggressive, mercantilist, mostly protectionist-focused speech,” said John Hardy, head of forex strategy at Saxo Bank in Copenhagen.

“The fear is that while some specific notions and ideas will be dollar-supportive, a mercantilist approach and Trump’s recent mention of currency policy and China’s currency policy as being too weak, could trigger the idea that Trump will use (this) policy to bully other nations toward a weaker dollar.”

Yuan strengthens as US dollar slides before Trump takes office

The dollar index rose about 4.2 per cent between Trump’s election in November and the end of last year, but has since given back more than 2.5 per cent.

The dollar’s steep rally following Trump’s victory was spurred by expectations the new administration would focus on pro-growth fiscal stimulus, tax cuts, and regulatory reform that would likely lift inflation and prompt the Federal Reserve to raise interest rates more quickly this year.

Sterling, meanwhile, was the other big gainer, hitting a six-week peak as investors bet Britain’s Supreme Court would rule on Tuesday that the government needs parliamentary approval to trigger formal Brexit talks.

It climbed as high as US$1.2506, its strongest level against the dollar since December 16. The pound also rose to a two-week high against the euro..

The euro was up 0.5 per cent at $1.0751, posting its seventh daily rise in the last nine.