Dollar skids on US election jitters; US jobs data awaited

Reuters Tokyo | Updated on January 15, 2018 Published on November 03, 2016


The dollar’s losses deepened on Thursday as positioning for next week’s US presidential election overshadowed the Federal Reserve’s latest review, where policymakers signalled they were on track to hike rates next month.

The dollar shed its early modest gains and skidded against the yen with markets in Japan closed for a public holiday.

It was last down 0.7 per cent at 102.57 yen, wallowing at its lowest levels since October 4 and well off its October 28 high of 105.53.

“The Fed didn’t really tell us too much that we didn’t already know. The focus in FX is still on the narrowing lead that Clinton has over Trump,” said Sue Trinh, head of Asia FX strategy at Royal Bank of Canada in Hong Kong.

“And that’s seeing a conventional risk-off move in markets in thin liquidity, with Tokyo out,” she said.

US presidential race

While Democratic candidate Hillary Clinton, seen as the status quo candidate for markets, remained ahead in many polls before Tuesday’s vote, some investors have begun pricing in the possibility of victory for her Republican rival Donald Trump.

An average of polls compiled by the RealClearPolitics website showed Clinton just 1.7 per cent ahead of Trump nationally on Wednesday, with 47 per cent support to his 45.3 per cent. But a Reuters/Ipsos daily tracking poll released on the same day showed Clinton ahead by 6 percentage points among likely voters.

Lockdown at US naval base

Further denting risk sentiment in Asia, a US naval base at Sasebo, in western Japan, was put on lockdown after reports of gunshots.

A Navy spokesman said there was no confirmation of an active shooter, and the base returned to normal activities.

“Clearly, in any environment when risk aversion picks up, the yen remains the ideal safe-haven currency,” said Mitul Kotecha, head of FX strategy at Asia-Pacific for Barclays in Singapore.

“And also, you can’t ignore the fact that the BOJ didn’t move on policy. That wasn’t a surprise, but it does seem now there is a sense that further action is some way off,” he added.

The Bank of Japan refrained from expanding its stimulus on Tuesday despite pushing back the time frame for hitting its 2 per cent inflation target.

Fed policy decision

The Fed had kept interest rates unchanged on Wednesday as widely expected in its last policy decision before the November 8 vote, and signalled it could hike rates in December as the economy gathers momentum and inflation picks up.

Traders were pricing in a 72 per cent likelihood that the Fed will raise interest rates in December, according to the CME Group’s FedWatch Tool.

US non-farm payrolls report

On Friday, the key US non-farm payrolls report will be released, and could reinforce or undermine those hike bets. Employers are expected to have added 175,000 jobs in October, according to the median estimate of 106 economists polled by Reuters.

The euro was up 0.2 per cent $1.1116 after rising 0.6 as high as $1.1125, its loftiest peak since October 11.

The dollar slipped 0.3 per cent against the Swiss franc to 0.9696 franc, gearing up to test its overnight low of 0.9691 which was its lowest level since October 3.

The dollar index, which tracks the greenback against a basket of six major currencies, dipped 0.3 per cent to 97.089 after dropping as low as 97.079, its lowest since October 11.

The Australian dollar was nearly flat against its US counterpart at $0.7656, but skidded 0.7 per cent against the resurgent Japanese currency to 78.57 yen, its lowest since October 14.

The Mexican peso, considered a proxy for Trump’s campaign due to that candidate’s vows to curb immigration and reconsider trade relations, fell to more than one-month lows against the US dollar.

The Mexican currency retreated to as low as 19.5172 pesos per dollar, its weakest since Sepember 30.

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Published on November 03, 2016
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