Dollar under more pressure as US economy cools

LONDON: The dollar retreated once more on Friday as a Donald Trump-inspired surge petered out and the US reported slowing economic growth.

“The dollar found itself under renewed selling pressure during Friday’s trading session despite US President Donald Trump stating that he expects the currency to get ‘stronger and stronger’,” said Lukman Otunuga at FXTM.

European stock markets rebounded from a round of heavy selling seen the previous day, but some analysts said the continent’s equity investors lacked conviction.

“Even though equities are in positive territory the level of enthusiasm isn’t anything special, and it feels like a lacklustre rally,” said David Madden, market analyst at CMC Markets UK.

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Wall Street was also higher approaching midday in New York, as exporting companies stood to gain from the softer dollar and chip giant Intel reported strong results.

After two quarters of expansion above three percent, US GDP slowed to 2.6 percent in the October-December period held down by a big jump in imports, the Commerce Department said in a first estimate.

– Mnuchin vs Trump –

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The surprisingly weak data — well below Trump’s growth target — came in just as the president was addressing the World Economic Forum in Davos.

Foreign exchange markets have been on a roller-coaster ride since US Treasury Secretary Steven Mnuchin sent the dollar spiralling to three-year lows against the euro by saying at Davos on Wednesday that a weaker unit was good for US trade.

That came as Commerce Secretary Wilbur Ross defended this week’s stinging US tariffs on solar panel imports and warned of further retaliation against nations Washington feels have broken the rules, ramping up fears of a possible global trade war.

Traders briefly rushed back into the dollar, though, after Trump, who arrived at the Swiss resort on Thursday, restated traditional US policy of favouring a strong dollar and said Mnuchin’s comments were taken out of context.

However, the recovery soon faded and dollar-selling resumed, with the euro heading back towards a three-year high.

“It seems that comments from Mnuchin stating a weaker dollar is ‘good’ for American trade, still has a lot of weight and this is reflected in the dollar’s heavily bearish price action,” said Otunuga.

– Watch the greenbacks tumble –

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On Thursday, ECB chief Mario Draghi voiced concern over the “volatility” in currency markets — a term which according to Jasper Lawler at the London Capital Group actually means euro strength in ECB parlance — but to no avail.

“The euro-buying sentiment is expected to stay strong as investors are convinced that the EU remains on course for (monetary) normalisation this year,” Masakazu Satou, analyst at Gaitame Online told AFP, referring to a wind-down of the ECB’s crisis-era stimulus.

And Stephen Innes, head of Asia-Pacific trading at OANDA, said the greenback could see more losses owing to Trump’s desire to help US manufacturers and exporters as part of his America First policy.

“The weaker dollar narrative remains intact for 2018,” he said.

The pound, meanwhile, also made further inroads against the greenback after stronger-than-expected British growth figures of 0.5 percent in the final three months of last year, although analysts were sceptical on the outlook.

“The outlook for the UK economy remains weak, although there is considerable uncertainty surrounding Brexit and how businesses and households will respond,” said Daniel Vernazza at UniCredit.

– Key figures around 1635 GMT –

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Euro/dollar: UP at $1.2423 from $1.2393 at 2200 GMT

Pound/dollar: UP at $1.4155 from $1.4143

Dollar/yen: DOWN at 108.41 yen from 109.43

London – FTSE 100: UP 0.7 percent at 7,665.54 points (close)

Frankfurt – DAX 30: UP 0.3 percent at 13,340.17 (close)

Paris – CAC 40: UP 0.9 percent at 5,529.15 (close)

EURO STOXX 50: UP 0.5 percent at 3,647.52

New York – DOW: UP 0.4 percent at 26,489.11

Tokyo – Nikkei 225: DOWN 0.2 percent at 23,631.88 (close)

Hong Kong – Hang Seng: UP 1.5 percent at 33,154.12 (close)