The U.S. dollar index steepened its decline in early Thursday trade, pulling back from a 2018 high, after President Donald Trump canceled next month’s North Korea summit and potential import tariffs on cars brought up renewed fears over trade-wars.
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What are currencies doing?
The ICE U.S. Dollar Index DXY, -0.18% dropped 0.4% to 93.624, after rising to its highest level since mid-December on Wednesday. The broader WSJ Dollar Index BUXX, -0.17% slipped 0.1% to 87.09.
Haven currencies, meanwhile, were on a roll on Thursday and strengthened against the U.S. counterpart. The dollar slipped to a two-week low of ¥109.20 from ¥110.08 against the Japanese yen USDJPY, -0.78% while trading down to a three-week nadir of 0.9896 from 0.9958 against the Swiss franc USDCHF, -0.3916%
Read: Here’s why emerging-market carnage is boosting the Japanese yen
Meanwhile, the greenback jumped to 1,084.09 from 1,077.25 against the South Korean won USDKRW, +0.65% late Wednesday in New York. The won-Japanese yen pair KRWJPY, -1.4677% slipped 1.5%, with the won buying ¥0.1007.
Separately, the British pound GBPUSD, +0.1798% climbed to $1.3401 from $1.3348. In Wednesday’s session, sterling fell to a 2018 intraday low, as an unexpected drop in U.K. inflation cast doubt on the chances of an August interest-rate rise from the Bank of England. Thursday’s climb came on the back of stronger-than-expected retail data.
The euro EURUSD, +0.2564% also recovered from Wednesday’s losing session and rose to $1.1749 versus $1.1699 late Wednesday in New York.
The Turkish lira USDTRY, +3.5925% resumed its selloff against the dollar and dropped more than 4% against the buck. The Turkish currency hit a historic low against the U.S. unit on Wednesday, before its central bank intervened to stabilize the currency. The renewed slide makes it more likely that Turkey’s central bank will act on rates again, analysts said. One dollar last bought 4.7680 lira, up from 4.5762 lira late Wednesday.
What is driving the market?
The U.S. dollar slipped from the 2018 high it hit Wednesday, as the market digested Trump’s cancellation of summit with North Korea, as well as the Federal Reserve’s May meeting minutes and renewed talk about trade and tariffs.
Haven currencies spiked on the back of the summit cancellation, while the Korean won falling.
Also see: North Korea issues fresh nuclear threats, says it may call off summit with Trump
On the trade front, news that President Donald Trump is asking for new tariffs of as much as 25% on vehicle and auto-parts imports. The move, a further sign of his administration’s protectionist approach, is seen as potentially ramping up tensions around global commerce.
See: Trump’s tariff threat vexes global auto makers, sending shares lower
Earlier in the week, the greenback rallied on signs the U.S. and China were moving closer to trade. The deal is seen as lowering the risk of a full-blown trade war. Trump on Tuesday, however, expressed dissatisfaction with the state of negotiations, contributing to a global bout of risk aversion.
In response to all that, haven currencies like Japan’s yen and the Swiss franc have strengthened further on Thursday.
Also check out: Emerging markets feel the pain as dollar, Treasury yields rise
Wednesday’s Fed minutes reinforced expectations for a June rate increase, they also showed a willingness by the central bank to let inflation run hotter than before. This was perceived as dovish by market participants who were still hoping to possibly see four rate increases in 2018, and also weighed on the greenback.
What are strategists saying?
“The dovish tilt to yesterday’s FOMC minutes, in which policy makers suggested that they could allow inflation to run a little above target implied no particular rush to raise interest rates,” wrote Scotiabank currency strategists Shaun Osborne and Eric Theoret. “Even though policy makers said they thought higher rates would be appropriate ‘soon’, June rate hike probabilities have faded marginally, while December expectations have softened somewhat.”
Fed-funds futures price in a 95% chance of a 25 basis point rate increase in June, compared with 100% last week. More important, traders now see a roughly 37% chance the Fed, which raised rates in March, will deliver a total of four rate increases in 2018 versus a better than 50% chance a week ago.
“U.S. 10-year yields have slipped back to 3% and the softer U.S. rate complex suggests that the essential lift under the recent dollar rebound looks a little less compelling now and the dollar may struggle to extend gains,” the Scotiabank strategists said.
The 10-year Treasury note TMUBMUSD10Y, -0.95% last yielded 2.964%.
What else is in focus?
Jobless claims for the week ended May 19 came in at a seven-week high of 234,000, compared with consensus estimates of 219,000.
At 10 a.m., existing home sales for April stood at 5.46 million, just below the expected 5.50 million, and concluded the day’s main data releases.
Philadelphia Fed President Patrick Harker will take part in a discussion on technology-enabled disruption at 2 p.m. Eastern.
New York Fed President William Dudley will give a speech on reference rate reform at 4.15 p.m. Eastern.
In other asset classes, U.S. stocks opened lower and extended their modest losses upon the North Korea news.