Dollar bounces higher as North Korea anxieties take a back seat
The U.S. dollar clawed back most of last week’s losses — partially caused by Friday’s inflation-data miss — on Monday as investors revived their interest in so-called risk assets after top U.S. officials sought to assuage tensions with North Korea over the weekend.
Secretary of Defense Jim Mattis and Secretary of State Rex Tillerson wrote in The Wall Street Journal that President Donald Trump’s administration is seeking diplomatic solutions to reach the goal of a “denuclearized Korean Peninsula.” That came after several days of an increasingly heated war of words between Trump and North Korean officials that unnerved investors.
Tensions over North Korea were replaced by domestic issues after deadly weekend violence at a white supremacist demonstration in Charlottesville, Va.
Global stocks rallied as the dollar was solidly in the green against its rivals. The ICE U.S. Dollar Index DXY, +0.04% which measures the currency against a half-dozen rivals, ended the day up 0.3% at 93.4100 after reaching a peak of 93.495 earlier today. The WSJ Dollar index BUXX, +0.09% which looks at the buck against a wider basket of currencies, was up 0.3% to 86.24.
The ICE Dollar Index fell 0.4% last week, marking its biggest drop since the week ended July 31, as geopolitical headlines eroded investor confidence.
Still, this has not been the first sign of weakness in the U.S. currency this year:
“It is fair to say that it is not contrarian anymore to be bearish dollar, as it has fallen nearly 9% year to date,” a research note from J.P.Morgan Cazenove analysts, led by Mislav Matejka, said today.
Other analysts, including some from Bank of America Merrill Lynch and Wells Fargo, have hinted that a strengthening move in the dollar could be imminent.
The dollar was up 0.5% against the yen USDJPY, +0.52% despite positive Japanese gross domestic product data released over the weekend, buying ¥109.67. Japan’s preliminary second-quarter GDP figures beat expectations across the board, rising 4% on the quarter and 2% on the year.
“That makes Japan the fastest-growing economy in the G-7 this quarter, by our reckoning, and may restart the chatter about the Bank of Japan’s eventual QQE exit strategy,” Rob Carnell, chief economist and head of Asia-Pacific research at ING, said.
The buck retreated slightly from a high of ¥109.68 earlier Monday, but remained higher, compared with ¥109.19 late on Friday. So far this year, the dollar has dropped 6.7% against its Japanese counterpart.
Perceived haven assets such as gold GCZ7, -0.72% and the Swiss francUSDCHF, +0.1337% all lost ground as the week kicked off.
The euro EURUSD, +0.0255% dropped below $1.18 on Monday after ending last week at $1.1823. Late in New York, one euro bought $1.1785, slightly up from a low of $1.1777 earlier. Data showed industrial production in the eurozone fell 0.6% in June, compared with May, indicating that the region’s economy may be settling down after a growth spurt in the beginning of the year.
Meanwhile, sterling GBPUSD, -0.0077% slid 0.3% to $1.2966 from $1.3011 late Friday.
U.S. data may provide a focus for investors this week, with July retail sales numbers expected on Tuesday and minutes from the July meeting of the policy-setting Federal Open Market Committee coming Wednesday.