Dollar Falls Fourth Day as Hawks Multiply at Other Central Banks

  • Yen advances as slide in local stocks spurs demand for safety
  • Aussie rises as iron-ore prices rally, Chinese data improve

MUFG's Halpenny Suspects Central Bank Coordination

The dollar weakened for a fourth day as increasing hawkishness at central banks outside the U.S. diminishes the relative appeal of the greenback.

Investors are turning away from the U.S. currency amid signs the nation’s economy is slowing and as political obstacles cast doubt on President Donald Trump’s reflation agenda. The yen strengthened for a third day as a slide in Japanese stocks drove haven demand for the currency. Australia’s dollar gained as iron ore rallied and Chinese manufacturing data beat forecasts.

“While the Fed continues to tighten on a relatively predictable path, the recent shift in rhetoric from other central banks like the ECB, BOE and BOC has been a surprise to many and has driven a reassessment of their respective currencies,” said Daniel Been, head of foreign-exchange research at Australia & New Zealand Banking Group Ltd. in Sydney. “We expect this weakness will continue against currencies where central banks are shifting their biases.”

The Bloomberg Dollar Spot Index has fallen 1.5 percent in June, a fourth month of losses, as the policy divergence that has supported the currency since the middle of 2014 diminishes. The euro has gained 1.8 percent versus the dollar as European Central President Mario Draghi said Tuesday the reflation of the region’s economy created room to reduce stimulus. The pound rose 1 percent as Bank of England Governor Mark Carney said there was a limit to tolerance for above-target inflation.

  • BBDXY drops 0.1% Friday, extending this year’s decline to 6.8%
  • USD/JPY falls 0.3% to 111.85 as Japan’s Nikkei 225 declines 1.1%
    • “Classic risk-off move is supporting the yen, despite softer-than-expected Japanese data that on its own suggest the BOJ is unlikely to take its foot off the easing pedal any time soon,” said Rodrigo Catril, currency strategist at National Australia Bank
      • “Major Asian equity indices are underwater, weighing on risk appetite. The yen is benefiting from its safe-haven attributes”
    • Technical support levels for FX pair seen at 100-DMA of 111.70, 200-DMA of 111.20
  • AUD/USD gains 0.2% to 0.7700 after reaching 0.7712, highest since March 21
    • China’s manufacturing PMI rose to 51.7 in June vs est. of 51 and 51.2 in May

— With assistance by Chikafumi Hodo

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