The dollar steadied on Tuesday, recovering from a dip on fears that US President Donald Trump’s focus on protectionism over fiscal stimulus suggested his administration might be content to gain a competitive advantage through a weaker currency.
The talk of trade wars came in the face of more data pointing to a revival in activity worldwide. A survey of Japanese manufacturing showed the fastest expansion in almost three years, as French business activity hit a 5-1/2 year peak.
European stocks gained 0.3 per cent as the upbeat data combined with a 2-1/2 year high in commodity stocks and on a 1 per cent jump in Italian stocks following a merger deal for two of its banks.
They made additional ground as Britain’s top court ruled that the UK government must get parliamentary approval to start the Brexit process, though sterling briefly dipped on news Scotland, Wales and Northern Ireland’s assemblies would not have to give their assent. It was largely fine-tuning however.
Both the euro and sterling had already been pushed back by the dollar as it clawed back from an overnight tumble that had taken the dollar index below the 100 point threshold.
“Most of the PMIs around the world have been quite strong so there is no bad news here, but the protectionism above stimulus story (from Trump) has given the dollar bulls reason for pause,” said Saxo bank’s head of FX strategy John Hardy. “The dollar rally needs to find some support pretty soon otherwise we are facing a potentially serious correction.”
Sentiment had taken a knock on Monday when US Treasury Secretary nominee Steven Mnuchin told senators that he would work to combat currency manipulation but would not give a clear answer on whether he thought China was manipulating its yuan.
Reuters
