Dollar Losing Traction May Signal Reflation Trade Pause

Updated on
  • Dollar lower even as Dow exceeds 20,000, Treasury yields surge
  • Sterling extends above 100-DMA for first time since referendum

Sinche: Upward Dollar Pressure a Trump Trade Challenge

The dollar gained little solace from a surge in U.S. stocks and a rise in the 10-year Treasury yield to its highest since the start of the month, signaling that the Trump reflation trade may have run its course for now when it comes to currencies.

The dollar was lower against most of its G-10 peers, with losses steepest against the Canadian dollar and the pound, while the Mexican peso gained more than 1% even as President Trump took action to advance a border wall.

Sterling was the strongest performer against the dollar among G-10 peers, extending gains above the 100-DMA of 1.2513, and was on course to close above that average for the first time since the Brexit referendum on June 24. Demand for the pound also added lift to dollar-yen while weighing on the euro, said traders in London and New York who asked not to be identified because they are not authorized to speak publicly.

Despite today’s sterling performance, bears may look to reset short positions at levels above 1.2800, traders in London and Europe said. Sterling gains came after Prime Minister Theresa May acceded to lawmaker demands to publish Brexit plans, following a Tuesday U.K. court ruling requiring a Parliamentary vote, thinning the cloud of uncertainty, traders said.

  • GBP/USD is up ~0.8% at 1.26220 near the session high at 1.2628 while GBP/JPY has gained ~0.7% to 143.40; EUR/GBP is -0.7% at 0.8509, likely weighing on EUR/USD
  • USD/JPY trading at ~113.63 after rebounding off an early low at 113.04 and stalling near 113.90 despite extended climb in Treasury yields; offers are in place above 114.10/15, while bids remain in place below 112.50, traders said
  • EUR/USD trading ~1.0737 after dropping to 1.0711 at the start of European trading before a deep layer of bids below 1.0710 underpinned; offers are in place above 1.0775, according to traders