Euro zone investors welcome unity, Trump turmoil knocks dollar

Lucy Hill
May 18, 2017

The U.S. dollar has retreated back to levels seen around the time of the U.S. presidential election in November, on growing concerns over President Donald Trump's ability to enact his economic agenda.

In currencies, the greenback =USD nursed deep losses after a weak USA manufacturing report trimmed expectations of a US rate increase next month, a key factor behind the dollar's gains in recent weeks. The Dow Jones Industrial Average dropped 1.1% at 20,755, and at it lows was on pace for its sharpest decline since September 13, 2016, according to FactSet data. Stocks fell sharply, however, in reaction to reports that the president asked former FBI director James Comey to drop the federal investigation into former national security adviser Michael Flynn's ties with Russian Federation. The S&P 500 financial sector .SPSY tumbled 3 percent. Apart from the sell-off in the futures market, the USA dollar was also hit, losing ground against the Japanese yen and euro. "Given that there are some stock indexes that have risen more than 10 percent so far this year, we may be entering a consolidation phase", said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.

"This more detailed release will show how much of the change was due to Easter timing effects (the price of those items affected by the timing of Easter are also included in the ECB's core inflation measure) or whether some pick-up in broader underlying inflation might be emerging", RBC Capital Markets' head of FX strategy Elsa Lignos wrote in a note.

About 8.37 billion shares changed hands on US exchanges in the busiest trading day since March 21, compared with the 6.9 billion-share average for the last 20 sessions. The Energy Information Administration's weekly report on petroleum inventories in the USA will be released at 10:30 a.m. ET.

Fixated on developments in the world's largest economy, Asian investors sent equities from Japan to Australia lower, with the MSCI Asia Pacific Index dropping 0.3 percent as energy producers and banks lead losses.

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Nine of the 11 major S&P 500 sectors fell with the only gain from utilities .SPLRCU and real estate .SPLRCR , defensive sectors with predictable if slow growth and high dividends. Even so, USA policymakers "are in the mindset to raise as long as the markets are prepared for it", he said.

The dollar index fell 0.73 percent, with the euro up 0.99 percent to $1.1082. The Shanghai Composite Index edged 0.2 percent lower to 3,104.44. The dollar bought 112.35 yen, well down from recent peaks above 114 yen seen last week. The safe-haven Swiss franc hit six-month highs.

The 10-year U.S. Treasuries yield dipped to 2.303 percent, flirting with its lowest level in two weeks. Spot gold rose for a fifth day and was up 1.8 percent at $1,258.38 an ounce. Futures for the Nasdaq 100 index declined 18.50 points to 5,704.75.

Global benchmark Brent crude LCOc1 settled up 98 cents, or 1.9 percent, at $51.82 a barrel, having touched $52.63, the highest since April 21. Hong Kong's Hang Seng index slipped 0.2 percent to 25,293.63.

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