Dollar Pares Gain as Havens Tick Up, Tax Plan Faces Criticism

  • Global bond sell-off follows Yellen warning not to delay hike
  • Dollar-yen briefly above 113.00 before Abe calls election

The dollar rose for a third day, though it failed to hold an advance to the highest level in a month as President Trump’s tax plan faced resistance and the yen and Swiss franc modestly rebounded.

Details of Trump’s tax proposal trickled out Wednesday, drawing immediate criticism from some lawmakers and reminding investors of the obstacles the plan faces. Meanwhile, the greenback benefited from weakness in the Canadian dollar, which dropped after the head of the Bank of Canada warned the central bank wasn’t on a preset rate path. The Bloomberg Dollar Spot index was up 0.5 percent on the day after rising as much as 0.7 percent amid a global bond rout.

  • The USD gained vs all of its G-10 peers save the New Zealand dollar as the 10Y UST yield climbed to its highest since Aug. 1. European government bonds also slumped after Fed Chair Yellen on Tuesday signaled that a December rate hike remains likely, despite inflation running below expectations. The Bloomberg Dollar Spot index’s 3-day gain of as much as 1.4% was the strongest since January
  • USD/CAD was trading near the session high of ~1.2464, its highest level in almost four weeks, after BOC Governor Poloz said there is no “predetermined path for interest rates” and that the central bank will proceed “cautiously” as it assesses the performance of the economy. His speech -- the first since the bank’s second consecutive rate increase -- damped expectations for a third hike. CHF and JPY gains may have been fueled by unwinds of CAD cross trades after Poloz spoke
  • EUR was trading around 1.1756 vs the USD and was mixed against its G-10 peers after paring some losses in the afternoon U.S. session. The common currency continues to be weighed by the uncertainty surrounding the German election outcome. EUR/GBP selling also influenced, after the pound saw overnight gains on unexpectedly strong U.K. retail sales data. ECB President Draghi canceled plans to speak Friday in London due to a family illness
  • EUR/USD earlier approached 1.1700, falling to its lowest in about 5 weeks. Ongoing sales were seen from model-driven accounts adding to shorts as the currency shifts direction, and longer-term EUR bulls were throwing in the towel, reducing positions set since the French election at the beginning of June, according to traders 
  • USD/JPY was trading around 112.76 as it rebounded from a midsession drop to 112.40. It earlier rose to a session high 113.26. The slippage under 113.00 was exacerbated by profit-taking from early longs and as EUR/JPY saw a modest round of selling, tripping some stops, said a New York-based trader familiar with the transactions who asked not to be identified because not authorized to speak publicly. The rebound was aided by a further decline in USTs that returned yields to near session highs
  • JPY remains broadly defensive on monetary policy considerations, with the BOJ committed to anchoring rates near zero for an extended period. At the same time, a looming election may have introduced some political uncertainty that was heightened after the opposition DPJ said it would not formally register for the election or field candidates, a sign of the disarray within the party. PM Abe has said he will dissolve the Lower House Thursday and announce a snap election, expected to be in October. The step is seen as taking advantage of his rebounding popularity
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