Dollar Extends Loss as Trump Begins Dismantling Trade Agreements

  • DXY to lowest since Dec. 8; dollar-yen drop cushioned by bids
  • Traders shun risk as reflation trade falters, awaiting details

Mnuchin Says Strong Dollar May Hurt U.S. Economy

The dollar remained on a defensive footing in U.S. trading after President Trump signed an executive order to withdraw from the Trans-Pacific Partnership and said he will renegotiate Nafta and introduce a tough border tax, with losses pared only slightly after a Fed official said he favored faster rate hikes than some of his colleagues to avoid the risk that the Fed gets behind the curve.

U.S. Treasury yields rose off their low after remarks on the pace of rate hikes from Richmond Fed President Jeffrey Lacker appeared on the website of a public radio station; earlier in the day, the yield on the 10-year Treasury fell as low as 2.38%, undermining a dollar which was extending losses that accelerated late last week. Foreign exchange trading was marked by very choppy price action as traders tried to steer clear of excessive risk while juggling the impact of falling yields and stocks.

Trump’s trade stance added to concerns that protectionism may curb potential benefits from yet-to-be detailed plans for fiscal stimulus that are intended to lift the economy from its sluggish growth path. Trump also held a meeting today with business leaders from around the country where he discussed a border tax for companies that move jobs outside the U.S.

Despite the short-term dollar weakness, traders say longer-term players may still step up to buy the dollar on dips and have left resting orders at below the market to begin that strategy, betting that the Fed will stay the path on monetary policy, thereby keeping the dollar’s yield advantage over major peers.; some of those bids cushioned dollar-yen as it fell to a fresh low for the day, traders said.

  • The dollar fell as much as 0.7% as measured by the Bloomberg dollar index, a more diversified basket than the DXY, which fell to lowest since Dec. 8; the greenback is lower vs all of its G-10 peers and most EMFX peers
  • USD/JPY fell more than 1.6% to a fresh low 112.76 before paring its drop as JPY gained on risk aversion; price action suggested that stop-loss sell orders were tripped under the European session low of 113.17
  • The dollar drop was cushioned by bids under 112.80 that are layered all the way to 112.00, traders in Europe and London said; key technical support is at 112.57, the low from Jan. 18
  • EUR/USD trading ~1.0746, remained below the 1.0755 high set in Asian hours, weighed in part by a drop in EUR/GBP amid sterling’s rebound; EUR will find offers ahead of 1.0800 with some stop-loss buy orders positioned just above there, traders said, while further offers are in place above 1.0820
  • EUR also to find key tech resistance at 1.0833 from the 100-DMA and at 1.0874 from the Dec. 8 high
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