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Dollar weakness lingers amid White House drama

Tuesday’s market moves are not matching the events in the White House for drama, but they are leaving the dollar looking hobbled around a broad range of notable lows.

The dollar index is at 92.943, fractionally above the previous session’s nadir, which took it back to levels last seen in May 2016.

The euro is holding above $1.18, a level it passed on Monday for the first time since January 2015. The shared currency is down 0.2 per cent on the session at $1.1816, leaving its gain for the year-to-date against the dollar at over 12 per cent

The pound is at $1.3207, a level it last touched in mid-September, holding the ground it gained during Monday’s 0.6 per cent advance. Over the last five sessions it is up 1.8 per cent, taking its recovery for 2017 to over 7 per cent.

The yen is holding ¥110 to the dollar, flat at ¥110.21. It last held that level in mid-June.

As Geoffrey Yu, head of the UK Investment Office at UBS, says, with expectations for meaningful policy action in Washington so low, it might not take much to lift the mood:

The term ‘Trumpflation’ has not been mentioned for some time — as evidenced by the performance of the dollar index over the past seven months. It is far too early to tell but if expectations about the effectiveness of the White House do begin to shift towards the positive side, especially with tax reform talks looming, it could provide the market with another fillip.

Lee Hardman at MUFG is also sounding a wary note about the buck:

While the US dollar is lacking fundamental support, we would add some caution that the risk of a reversal in the near-term is also high against most other G10 currencies

The stage is being set for a corrective rebound but there is no obvious fundamental trigger yet.

There are broad gains for equities, with energy stocks and financials continuing to rally, as crude prices rise and HSBC’s $2bn capital return provides lingering cheer.

The gains, led by two of London’s most heavily weighted sectors, mean the FTSE 100 is outperforming, up 0.4 per cent. HSBC’s gain over two sessions since the buyback was announced is now over 2 per cent.

The Xetra Dax 30 in Frankfurt is up 0.1 per cent. The region-wide FTSE Euro Stoxx 600 is up 0.2 per cent.

The Hang Seng in Hong Kong is up 0.7 per cent, helped by its financials. In Tokyo the Topix is up 0.4 per cent as financials rose 1.2 per cent ahead of earnings season for banks.

In fixed income, The yield on 10-year US Treasuries is up 1 basis points as investors trim exposure to the debt. The yield on Germany’s 10-year Bunds is up 2bp at 0.545 per cent