Dollar Pares Weekly Decline as Currency Builds Broad Support

  • Brazilian markets tumble after new scandal embroils Temer
  • Yen haven gains unwind as U.S. stocks reverse early drop

The dollar rode a burst of energy in afternoon trading to fresh highs for the day as markets thinned and traders pared back short positions set earlier in the day.

The greenback rose as much as 0.5 percent, its biggest gain since May 9, after six straight losses. The dollar surged against the yen to a new daily high, while the pound plunged after earlier touching its highest since September. Price action suggested stop-loss sell orders were tripped.

  • The dollar is higher vs all of its G-10 peers. Its fortunes were earlier boosted by economic data that showed weekly jobless claims unexpectedly fell and the Philadelphia Fed Index for May unexpectedly rose
  • Markets are in a heightened state of anxiety surrounding developments in the U.S. and abroad that are seen to impact the U.S. legislative agenda of President Trump, throwing into doubt the timetable for fiscal stimulus and health care reform. The afternoon surge may have benefited from traders circulating a video of former FBI director Comey testifying earlier in May that he had never been asked to stop an investigation for political reasons. Markets were rattled by an overnight report implicating Brazil President Michel Temer in a bribery scandal, which sent the Brazilian real and local stocks tumbling
    • House Speaker Paul Ryan said Thursday that the Russia probe “doesn’t stop us” from trying to work, adding that the GOP’s goal for tax reform is in calendar year 2017; the Trump administration took a first formal step Thursday toward renegotiating Nafta; the Mexican peso reversed losses after a surprise Banxico rate hike
  • Amid broad risk-aversion and a hunt for safe havens, the yen struggled to find equilibrium; USD/JPY spiked to 111.74 as the dollar built broad gains later in the session. Price action suggested a few stops tripped above 111.50. The pair earlier saw overnight gains of as high as 111.42 in Asian trading evaporate, with the dollar falling to a fresh low at 110.24 as euro and other cross sales weighed in European trading.
  • EUR/USD hit a new low under 1.1080 on back of dollar strength, continuing a decline seen earlier in the session. The common currency had dropped earlier after minutes of the ECB’s April meeting showed governing council members remained unconvinced about the sustainability of the recent increase in inflation. EUR filled bids under 1.1100 along with stop-loss sell orders below 1.1080; additional bids may emerge ~1.1050
    • ECB President Draghi said in a speech in Tel Aviv that “the recovery in the euro area is resilient and is increasingly broad-based across countries and sectors"
  • GBP/USD dropped to a low of 1.2890, dropping a full cent in a matter of minutes as large volumes traded in FX futures, according to a trader in New York, before snapping back to trade ~1.2939. The pound was earlier supported as U.K. April retail sales rose at double estimates, boosted by good weather
  • Some information comes from foreign exchange traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly
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