Dollar Slides to 14-Month Low vs Euro as Trump Agenda in Doubt

  • Greenback down vs most of G-10; pound drops on inflation miss
  • AUD outpaces pack with 1.5% gain as USD/JPY tests key support

CBA's Haddad Sees Vulnerable U.S. Dollar

The dollar touched its weakest level versus the euro in 14 months after U.S. Senate Republicans’ drive to repeal Obamacare appeared headed for failure, dimming hope for other parts of the Trump administration’s agenda, including tax cuts.

The greenback sank versus nine of its G-10 peers and was down 0.5 percent as measured by the Bloomberg Dollar Spot index at 2:15pm ET. The euro climbed as much as 0.9 percent to 1.1583, the highest since May 2016. Dollar losses have been driven by selling from model-driven funds that have added to recently set short positions, as well as by selling from real-money accounts and macro players, said traders from Europe and Asia.

  • The dollar was also undermined by a sharp drop in U.S. Treasury yields; the greenback’s steepest losses were vs the Australian dollar and the Norwegian krone; the pound fell after an unexpected drop in inflation undercut expectations that the Bank of England may raise rates
  • EUR/USD approached its 2016 peak at 1.1616; pair extended gains that began in Asian trading after Senate Majority Leader Mitch McConnell announced that the health-care reform bill would be abandoned; EUR easily climbed over the 1.1500 area where offers had capped recent gains, marching higher through the European session 
  • Traders are positioning for Thursday’s ECB policy meeting; while the bank is expected to keep rates and policies on hold, investors will look for signals on whether President Mario Draghi is considering steps to withdraw some policy support that’s returned the European economy to more stable footing; the Bloomberg Euro index rose as much as 0.7 percent to a record high
  • ECB meeting is “all about the tone,” Aberdeen Asset Management’s Patrick O’Donnell said in a note. Draghi “will be at pains to go no further than he already has on the hawkish tone”
  • USD/JPY rebounded above 112.00 after falling to a fresh low at 111.69 amid selling from macro names and others as the pair breached technical support from its 55-DMA at 111.96, according to a trader in New York; dollar losses abated after the pair briefly broke below technical support from the 100- and 200-DMAs near 111.80, though a close below that area may see the pair extend losses toward the June 22 low at 110.95
  • GBP/USD pared losses seen after climbing to its highest since last Sept. 16, losing ground ahead of data that showed inflation in the U.K. rose at a 2.6% annual pace vs expectations for 2.9%; that damped expectations that the BOE may raise rates when it meets in August
  • Some information comes from traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly
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