The dollar fell to a four-week low on Tuesday, moving lower against all Group of 10 currencies with sterling leading the charge after a soothing speech on Brexit from British Prime Minister Theresa May triggered the pound's largest one-day percentage gain since at least 1998. A recent sell-off in the dollar deepened as US traders returned from a long weekend to widespread weakness after President-elect Donald Trump said the greenback's strength against the Chinese yuan "is killing us."
Sterling rose by about 3 percent against the dollar, touching its highest in nearly two weeks and posting its biggest gain on record, according to Thomson Reuters Matching data, which goes back to 1998.
The pound, already up more than 1 percent on unexpectedly high December inflation data, spiked higher Tuesday after May pledged to hold a parliamentary vote on whatever deal Britain eventually reaches to leave the European Union.
"The key event was May's speech," said Vassili Serebriakov, FX strategist at Credit Agricole. "I think it was a case of sell the rumour, buy the fact - buy sterling on the speech after selling on the rhetoric, which gave some concessions to the soft Brexit camp and prompted a relief rally in sterling."
The euro gained around 1 percent, rising above $1.07 for the first time since December 8. The dollar fell 1.3 percent against the Japanese yen to its lowest level since November 30. Analysts have suggested that the greenback may have hit its peak when it touched a 14-year high earlier this month. Since then, the dollar has consolidated in most currency pairs and against a basket of six major currencies that track its value, hitting its lowest since December 8 on Tuesday. Trump's weekend comments likely exacerbated that trend, Serebriakov said.
The dollar surged at the end of 2016 on expectations that Trump's proposed stimulus would boost US economic growth and feed demand for the dollar. But he has continued to strike a harsh tone toward Beijing and his protectionist rhetoric is beginning to play a larger role in investors' thinking.
In an interview with the Wall Street Journal, Trump said US companies "can't compete with (China) now because our currency is strong and it's killing us." The dollar fell as low as 112.68 yen with investors also citing Trump's tweets criticising a Republican plan on border tax adjustments which had been expected to support the dollar.
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