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.

European stock markets rebounded, while oil prices steadied.

Wall Street also made a slightly stronger start, as exporting companies stood to gain from the slipping currency.

“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.

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

The surprisingly weak data came in just as Trump 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 felt had broken the rules, ramping up fears of a possible global trade war.

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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.

The euro was also helped higher by European Central Bank boss Mario Draghi who showed little concern about the effect of a stronger unit on the eurozone.

Watch the greenbacks tumble

Draghi did voice concern over the “volatility” in currency markets — a term which according Jasper Lawler at the London Capital Group 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.

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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.

“It’s obvious to anyone that the US administration trade policy would benefit from the weaker dollar policy, but I suspect Trump’s latest… comments are more about optics and little more than a case of temporarily taming the dollar bear ahead of his Davos speech” on Friday, he said.

“The weaker dollar narrative remains intact for 2018.”

The pound, meanwhile, also made further inroads against the greenback after stronger-than-expected British growth figures, 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.