US dollar falls to 6-month low on Trump jitters

US one hundred dollar bills are seen in this picture illustration.
US one hundred dollar bills are seen in this picture illustration.PHOTO: REUTERS

TOKYO (REUTERS) - The US dollar wallowed near six-month lows against a basket of major currencies on Thursday (May 18) as the US political crisis appeared to deepen, and likely to delay any efforts by President Donald Trump to carry out his economic stimulus plans.

The dollar index reached its lowest level since early November, having shed 2.2 per cent in the past four sessions.

It last stood at 97.42, having given up all the gains it had made following the US election in November.

The US currency continued to weaken against the Singapore dollar on Thursday, declining 0.2 per cent to S$1.3915 from Wednesday's close. The US dollar has slipped about 1.2 per cent against the Singdollar this week.

The Justice Department appointed a former FBI director as special counsel to investigate possible collusion between President Donald Trump's 2016 campaign team and Russia.

The appointment of a special counsel follows Mr Trump's dismissal of Mr James Comey, his FBI director who was investigating Russia's role in the US election.

Media then reported that Mr Trump may have interfered with a federal investigation, a serious allegation that could even lead to his impeachment if verified.

"Political instability in the United States is shaking markets. You would put a brake on investments to the US when you see those headlines," said Mr Bart Wakabayashi, Tokyo Branch Manager of State Street Bank.

Although Mr Trump's surprise election victory had initially sparked buying in the dollar and US assets on hopes for his tax cuts and infrastructure spending plans, such "Trump trades" has been wound back.

Indeed, the index has fallen 5.8 per cent from its 14-year high marked 103.82 set on Jan 3, despite widespread talk that the US currency should be supported by the prospect of higher US interest rates.

The Federal Reserve raised rates in March and its officials have said there could be two or three more rate hikes this year.

Yet, US political turmoil and softer-than-expected US economic data in the past week, such as retail sales, consumer inflation and housing starts, is leading market players to discount the chance of more rate hikes.

Fed Fund futures are now pricing in only about 60 per cent chance of a rate hike by June, compared to around 90 percent earlier this month, and are no longer pricing in a 100 per cent of one hike even by December.

Against that backdrop, the dollar dropped 2.09 per cent against the yen on Wednesday, its biggest fall since July 29 last year.

It fell to a three-week low of 110.53 yen on Thursday before bouncing back a tad to 111.09 yen, up 0.3 per cent from late US levels, on Japanese bargain-hunting.

The yen showed limited response to data that showed Japan's GDP grew an annualised 2.2 per cent in the first three months of this year, beating economists' forecast of 1.7 per cent rise.

"Although the headline GDP was stronger than expected, the GDP deflator was deeper into negative, pointing to persistent deflationary pressure," said Minori Uchida, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

The euro hit a six-month high of US$1.1174 and last stood at US$1.1161.

The Swiss franc hit a six-month high of 0.9774 to the dollar on Wednesday before easing back to 0.9789.

Against the euro, to which the Swiss currency is closely tied, the franc firmed to 1.09270 franc per euro from last week's eight-month low of 1.0987.

With additional information from The Straits Times