Dollar snaps back after three-day slide as investors await cues on Trump policies

The US dollar advanced on Wednesday (Nov 20), resuming its post-election rally after a three-day slide as investors awaited more clues on US President-elect Donald Trump’s proposed policies, while the Japanese yen slid as safe-haven demand faded.

The previous day’s boost to the dollar and other traditional safe-haven currencies like the yen on geopolitical concerns proved short-lived, after Russia’s foreign minister said the country would “do everything possible” to avoid the onset of nuclear war, hours after Moscow announced it would lower its threshold for a nuclear strike.

The Russia-Ukraine “fears have died back but the market will be sensitive to any fresh news on that front”, said Jane Foley, head of FX strategy, at Rabobank in London.

The Japanese yen dropped to 155.815 against the greenback, retracing the previous day’s gains. The yen’s recent slide to a three-month low upped bets of a likely hawkish shift at the Bank of Japan as it nears levels that drew intervention in July.

Foley said 155 was the dollar-yen level that made markets nervous of intervention, adding that “if there is the possibility that verbal intervention is having a significant impact in stabilising the currency pair, then that is likely to deter the ministry of finance, at least for a while, from using actual intervention”.

BOJ governor Kazuo Ueda made only passing mention of the currency earlier this week.

The dollar index – which measures the currency against six major peers – advanced 0.5 per cent to 106.59, recovering from a three-day slide.

The index hit a one-year high of 107.07 on Thursday last week, buoyed by expectations for big fiscal spending, higher tariffs and tighter immigration under the incoming US administration, measures which economists say could foster inflation and potentially slow Federal Reserve easing.

“Having priced in a lot of the Trump trade, we might be in consolidation phase until early January when Trump does take the reins and we get a firmer idea of the detail of the policy,” Foley said.

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Investors are still waiting for Trump to name a Treasury Secretary, one of the highest-profile Cabinet posts overseeing the country’s financial and economic policy. Some of Trump’s other picks have provoked controversy for their relatively meagre relevant experience.

“The ‘Trump Trade’ that boosted the greenback is facing challenges from Trump’s controversial Cabinet nominations and the escalation in the Russian-Ukraine war,” DBS strategists wrote in a client note.

For the dollar over longer term though, “more weight should be put on firm economic data and the increasing likelihood that the Fed may have to slow the rate cut path even more in 2025“, they said.

Traders continue to pare back expectations for an interest-rate cut at the Fed’s next meeting in December, with bets now at 55.5 per cent, down from 82.5 per cent a week ago, according to CME’s FedWatch Tool.

Sterling got a brief boost before paring those gains as data showed stronger than expected jump in British consumer inflation in October supports the view that the Bank of England will lower interest rates only gradually in the coming months.

Traders currently see an 84 per cent chance that the BOE will hold rates steady at its policy meeting next month.

The pound was last down 0.1 per cent at US$1.26695.

The euro dipped 0.4 per cent to US$1.0559, from far from the previous session’s low of US$1.0524.

Bitcoin hovered near the all-time peak above US$94,000 it hit overnight, carried by expectations for a friendlier regulatory environment for cryptocurrencies under Trump.

A report said Trump’s social media company was in talks to buy crypto trading firm Bakkt, bolstering hopes of a cryptocurrency-friendly regime under his administration. REUTERS