US dollar drifts lower as rebound stalls amid lingering Trump woes

[TOKYO] The US dollar drifted lower against the yen and euro on Wednesday, as lingering concerns about US President Donald Trump's protectionist stance undermined the greenback's earlier rebound.

The US currency was down 0.25 per cent at 113.500 yen after briefly nearing 114.00. It had gained about one per cent the previous day to bounce from an eight-week trough of 112.520 as US Treasury yields had reversed course and risen.

The euro was a shade higher at US$1.0733. The common currency had lost about 0.3 per cent overnight, sliding from a near seven-week high of US$1.0775.

The dollar index against a basket of major currencies gave back a bulk of its overnight gains and was last down 0.2 per cent at 100.180.

"We retain our view that the dollar is on a longer-term uptrend. But for the moment, scepticism towards the Trump presidency retains the upper hand," said Shusuke Yamada, chief Japan FX strategist at BOA Merrill Lynch.

"Such scepticism could linger for a while since it will be some time before we get a clear picture of the Trump presidency's fiscal spending and tax plans."

The dollar index had soared to a 14-year high of 103.820 in the eight weeks following Mr Trump's surprise election victory in November.

Investors bet his promised infrastructure spending and tax cuts would boost economic growth and inflation, leading the Federal Reserve to follow through with a series of rate hikes.

But the dollar index went to a six-week low of 99.899 on Monday, with the initial elation tempered by Mr Trump's inaugural speech last week that was heavily slanted toward trade protectionism.

"The dollar did manage to bounce overnight but it still lacks general direction. I do not see the rebound going much further under such conditions," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

And while higher US yields may have given the dollar a lift for the moment, Mr Yamamoto saw the correlation between the two lessening ahead.

"Protectionist rhetoric and the negative impact it has on the dollar could begin to override any lift from higher Treasury yields," Mr Yamamoto said.

Elsewhere, the pound was up 0.1 per cent at US$1.2528. It had fallen to as low as US$1.2420 overnight before bouncing back after the British Supreme Court ruled that the government must go through parliament, but not the UK's regional assemblies, to trigger talks on leaving the European Union.

The decision overall was seen removing some of the uncertainty for the pound by clearing the way for Prime Minister Theresa May to proceed with launching Brexit talks.

The Australian dollar was down 0.4 per cent at US$0.7548 , knocked away from a 10-week high of US$0.7609 scaled the previous day as weaker-than-expected fourth quarter inflation data kept alive the prospect of another rate cut.

The New Zealand dollar fared better to stand little changed at US$0.7244, hovering near a ten-week high of US$0.7276 hit the previous day.

US Treasury yields rose on Tuesday as investors snapped up equities on improved outlook on corporate profits, trimming their safe-haven demand for bonds spurred by US President Donald Trump's protectionist trade stance.

REUTERS