The dollar rallied against high-yielding currencies and cemented gains versus its major peers Thursday as dealers took a speech by Federal Reserve boss Janet Yellen as a hint that US rates will rise further this year.
A weaker yen helped Japanese stocks lead a broad advance across Asian markets as optimism was buoyed by Yellen’s remarks on the economy but traders moved cautiously ahead of Donald Trump’s inauguration on Friday.
In the two months after Trump’s November election win the dollar soared against all other currencies on expectations his big-spending, tax-cutting plans will fan growth, ramp up inflation and force the Fed to lift borrowing costs.
But growing uncertainty in the past two weeks, made worse by a lack of policy detail from the president-elect, has sent investors scurrying back out of the US unit until they see signs of firm plans.
However, Yellen breathed life back into the greenback Wednesday with a speech in which she said the US economy was meeting the central bank’s inflation and employment goals, and was confident it would push on.
“Yellen’s comments reinforced the message that we have been getting from other Fed speakers that the economy is already strong even before the addition of any stimulus from Trumponomics,” said Greg McKenna, chief market strategist at FX and CFD provider AxiTrader.
The dollar was virtually flat against the yen, euro and pound a day after surging around one percent against each.
However, it jumped almost one percent against the South Korean won, 0.4 percent against the Australian dollar and 1.3 percent on Canada’s dollar. The Malaysian ringgit was down 0.1 percent, as was Indonesia’s rupiah.
– Takata, Toshiba plunge –
On equity markets Tokyo’s Nikkei finished 0.9 percent higher as exporters were lifted by the weakening yen.
The gains came despite a 17 percent plunge in Takata following a report that two rival suitors are set to propose bankruptcy restructuring plans for the airbag maker at the centre of the biggest-ever auto safety recall.
And Toshiba slumped 16 percent after the Nikkei business daily said the conglomerate could book losses of more than 500 billion yen in its nuclear reactor business.
Sydney edged up 0.2 percent while Seoul put on 0.1 percent, while Singapore, Jakarta, Manila and Mumbai also posted gains.
But Hong Kong lost 0.5 percent in the afternoon and Shanghai closed 0.4 percent lower.
Investors are waiting for Trump’s post-inauguration speech hoping he will provide some colour to his campaign promises although there are concerns among many Asian markets about his protectionist rhetoric.
“While the inauguration is dominating headlines, simmering on the back burner is the overriding theme of US protectionism, expressly directed at China,” Stephen Innes, senior trader at OANDA, said in a note.
“With so many prominent trade hawks joining the Trump administration, it all points to a massive shift in US trade policy. That does not paint a rosy picture for regional… exporters, nor countries like Australia, which play such a vital role in the global supply chain.”
– Key figures around 0700 GMT –
Tokyo – Nikkei 225: UP 0.9 percent at 19,072.25 (close)
Shanghai – Composite: DOWN 0.4 percent at 3,101.30 (close)
Hong Kong – Hang Seng: DOWN 0.5 percent at 22,988.38
Pound/dollar: UP at $1.2280 from $1.2258
Euro/dollar: UP at $1.0640 from $1.0629
Dollar/yen: UP at 114.70 yen from 114.65 yen
Oil – West Texas Intermediate: UP 47 cents at $51.55 per barrel
Oil – Brent North Sea: UP 49 cents $54.41
New York – Dow: DOWN 0.1 percent at 19,804.72 (close)
London – FTSE 100: UP 0.4 percent at 7,247.61 (close)
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