SYDNEY, July 19 2017 : The dollar stayed on the defensive today as investors wagered any further tightening in the United States would be slow at best, while optimism on China’s economy underpinned Asian shares and commodities.
The U.S. currency was near multi-month lows after the collapse of the Republicans’ push to overhaul healthcare dealt a blow to President Donald Trump’s ability to pass promised tax cuts and infrastructure spending.
The diminished prospect of fiscal spending was a boon to bonds, especially as a run of soft U.S. inflation results had lessened the risk that the Federal Reserve would need to be aggressive in removing its stimulus.
As a result yields on 10-year Treasury notes were down at 2.266 percent, having fallen 13 basis points in little more than a week.
That in turn undermined the U.S. dollar which hit its lowest since September against a basket of currencies. Early today it had steadied for the moment at 94.689, but was still down over 7 percent on the year so far.
The euro was firm at $1.1551 EUR=, having made a 14-month top at $1.1583. Investors were wary of pushing the euro too far in case a European Central Bank policy meeting tomorrow proved less hawkish than bulls were betting on.
The dollar also carved out a two-year low on the Australian dollar and a one-year trough on the Swiss franc CHF=.
Losses have been more limited against the yen as the Bank of Japan has stuck with its massive stimulus campaign and stopped yields there from rising. The dollar was trading at 111.98 JPY= today, up from a low of 111.685.
Speculation that the Bank of England might soon tighten was also dealt a blow by surprisingly soft inflation figures at home, giving the dollar a leg up on the pound GBP=.
In Asia, investor sentiment has also been supported by a raft of upbeat economic news out of China. MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.16 percent in early trade at its highest since April 2015.
Australia’s main index climbed 0.7 percent, but the strength of the yen nudged Japan’s Nikkei .N225 down 0.1 percent.
Wall Street had ended yesterday mixed after a heavy dose of corporate earnings, with the Dow dragged by Goldman Sachs (GS.N) but the Nasdaq reaching a record high.
The drop in the dollar and optimism on Chinese demand helped underpin commodities, with everything from copper to iron ore on the rise. Spot gold also added another 0.1 percent to $1.243.36 per ounce.
Oil prices eased back after climbing yesterday. U.S. crude was last off 18 cents at $46.22 per barrel, while Brent dipped 17 cents to $48.67. – Reuters