Posted on October 9, 2017 by trendscare in Business

TOKYO: The dollar stepped back from a 1-1/2-month high against a basket of currencies on Wednesday on speculation that US President Donald Trump’s choice for the next Fed chair could be a less hawkish candidate than some had expected.

US Treasury Secretary Steven Mnuchin favours Fed Governor Jerome Powell over former Fed Kevin Warsh, Politico reported. The two Warsh and Powell were interviewed at the White House last week.

While the two are seen as serious applicants to replace current Chair Janet Yellen when her term expires in February next year, Powell is seen as more dovish than Warsh, who has criticised the Fed’s bond-buying programme previously.

The buck had rallied before this week on speculation which Warsh might be the leading candidate to replace Yellen, also got an excess boost from strong US data.

A more hawkish Fed candidate would probably prompt investors to bet on more competitive normalization of financial policy, to the dollar’s benefit.

“The next head of the Fed is a longer-term attention for the currency markets,” said Keiko Ninomiya, senior FX market analyst in SMBC Trust Bank in Tokyo. “In the shorter term, investors are cautious ahead of US employment information after this week,” she said.

The dollar index, which monitors the greenback from a basket of six big rivals, slipped 0.2 percent to 93.433 , off a six-week high of 93.92 touched on Tuesday following strong US manufacturing figures.

“The dollar has gained lately on expectations of a Fed rate increase in December and expects of tax cuts, however, the markets have ended pricing in all the positive information,” said Shinichiro Kadota, senior rates and FX strategist at Barclays.

“A December rate hike is already payable while we must see if any tax price will come through,” he added.

Dollar money market futures were pricing in about a 70 percent chance of a rate hike by December.

The euro traded at $1.1764, up 0.2 per cent on the day and off Tuesday’s 1 1/2-month low of $1.16955.

The frequent currency has been also dogged by concerns over political and social chaos in Catalonia.

Spain’s King Felipe VI on Tuesday accused Catalan secessionist leaders of shattering democratic principles and dividing Catalan society while Catalonia’s chief, Carles Puigdemont, said the region will announce independence in a few days.

The dollar’s rally against the yen has also stalled, with the US currency unable to clear resistance around 113.25 yen from the past week. The dollar dipped 0.2 percent to 112.64 yen .

The British pound totaled 0.2 per cent higher to $1.3259, but was still down 1.0 per cent so far this week.
It fell to $1.3222 overnight, its lowest in almost three months, after data showing a surprise contraction in the construction sector voicing concerns about economic instability surrounding Britain’s departure from the European Union.

Adding to a sense of uncertainty, Brexit minister David Davis stated on Tuesday that Britain is ready to walk away without a deal, which officials were “contingency planning” to make certain all scenarios were covered.
The Australian dollar slipped back slightly from Tuesday’s three-month low after the central bank cautioned that a greater money would drag on the economy and inflation.

The Aussie brought $0.7856, up 0.2 per cent on the day and off Tuesday’s low of $0.7785.