US dollar drops to 11-week low, offshore yuan strengthens

PUBLISHED : Thursday, 02 February, 2017, 1:48pm
UPDATED : Thursday, 02 February, 2017, 10:20pm

A key US dollar index slipped to an 11-week low while offshore yuan strengthened on Thursday after the Federal Reserve left interest rates unchanged in its first meeting since Donald Trump took office.

The ICE dollar index, a measure of the greenback’s strength against six rival currencies, hit 99.251 on Thursday afternoon, the lowest level since November 14.

It was a 0.39 per cent drop from the reading of 99.737 at Wednesday’s close. The index just posted its worst January performance in three decades.

In the offshore market, one US dollar bought 6.8127 yuan in the late afternoon, 0.27 per cent down from the previous close of 6.8310.

The markets remain glued to developments in the US, which are predictably impacting global investor sentiment
Stephen Innes, Oanda Asia Pacific

“The offshore yuan continues to trade off broader US moves,” said Stephen Innes, a senior currency trader at Oanda Asia Pacific. “The markets remain glued to developments in the US, which are predictably impacting global investor sentiment.”

On Wednesday, American central bank policymakers gave no hint as to the schedule of the next rate increase as fiscal policies under Donald Trump’s administration remain uncertain, although they reiterated that there have been improvements in the domestic economy.

The greenback edged lower after the Fed decided to keep the rate on hold, reversing its gains late on Wednesday following solid US employment and manufacturing data.

The Institute for Supply Management (ISM) said its index of US factory activity increased to 56.0 in January from 54.5 in December, the highest in more than two years.

Private employers added 246,000 jobs in January, up from 151,000 in December, beating estimates, according to the ADP National Employment Report.

On Thursday afternoon, the dollar had weakened 0.63 per cent against the Japanese currency to 112.54. The euro strengthened 0.40 per cent against the greenback to 1.0812 dollar per euro from the previous close of 1.0769.

Innes said the positive economic figures were not sufficient to support the greenback as concerns remained over Trump’s preference for weaker US dollar policies.

Trump on Tuesday criticised China and Japan for devaluing their currencies, while his top trade adviser Peter Navarro accused Germany of taking advantage of a “grossly undervalued” euro.

“The initial move higher was so weak; traders acted out of habit and were quick to sell the dollar back for a small profit,” Innes said.

“The Trump fear factor has left its footprint all over the US dollar against the Japanese yen view.”