US dollar skids after Trump's pick for Treasury Secretary says excessively strong currency may hurt US economy

The US dollar was under pressure in Asia on Tuesday after skidding overnight in response to Treasury Secretary nominee Steven Mnuchin's remarks raising concerns about the currency's strength.
The US dollar was under pressure in Asia on Tuesday after skidding overnight in response to Treasury Secretary nominee Steven Mnuchin's remarks raising concerns about the currency's strength.PHOTO: BLOOMBERG

TOKYO (REUTERS, BLOOMBERG) - The US dollar was under pressure in Asia on Tuesday (Jan 24) after skidding overnight in response to Treasury Secretary nominee Steven Mnuchin's remarks raising concerns about the currency's strength.

The Bloomberg Dollar Spot Index fell to a six-week low on Monday after Mnuchin said an "excessively strong dollar" could have a negative short-term effect on the economy.

US President Donald Trump's focus on trade protectionism has fuelled suspicions his administration might seek a competitive advantage through a weaker currency.

The talk of trade wars favoured safe-haven Treasuries and the Japanese yen while leaving stocks mixed.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1 per cent but Tokyo's Nikkei slipped 0.3 per cent.

Mnuchin also told senators that he would work to combat currency manipulation but would not give a clear answer on whether he views China as manipulating its yuan.

The dollar duly skidded as far as 112.52 yen, breaking last week's trough and the lowest since late November, before steadying at 112.81. Its 1.7 per cent loss on Monday was the largest since July 29.

Against a basket of currencies, the dollar index was down 0.1 per cent at 100.040, while the euro hopped up to US$1.0760 . Both were levels last seen in early December.

The pound hit a six-week peak at $1.2546 on speculation that Britain's Supreme Court would rule on Tuesday that the government needs parliamentary approval to trigger formal Brexit talks.

While Trump promised "massive" cuts in taxes and regulations on Monday, he also formally withdrew from the Trans-Pacific Partnership (TPP) trade deal and talked of big border taxes.

"It's interesting that markets did not respond positively to a reaffirmation of lower taxes and looser regulation, reinforcing the impression that all the good news is discounted for now," wrote analysts at ANZ in a note. "As week one in office gets underway, there is a growing sense of scepticism, not helped by the tone of Friday's inaugural address and subsequent spat with the media."

Doubts about exactly how much fiscal stimulus might be forthcoming helped Treasuries rally. Yields on 10-year notes dropped 6 basis points to 2.401 per cent on Monday, the steepest single-day drop since Jan 5.

Two-year yields were at 1.16 per cent, narrowing the dollar's premium over the euro to 183 basis points from a recent top of 207 basis points.

Wall Street lost just a little of its recent gains. The Dow Jones fell 0.14 per cent, while the S&P 500 lost 0.27 per cent and the Nasdaq 0.04 perc ent.

Shares in Qualcomm Inc dived almost 13 per cent after it was sued by Apple on Friday.

The drop in the dollar boosted gold to a two-month high and the precious metal was last trading at US$1,217.00 an ounce .

Oil prices lagged as signs of a strong recovery in US drilling largely overshadowed news that Opec and non-Opec producers were on track to meet output reduction goals.

US crude futures added 14 cents or 0.3 per cent to US$52.88, paring some of its overnight losses, while Brent crude was yet to trade at US$55.23 a barrel.