NEW YORK/LONDON: The dollar strengthened broadly against major pairs on Monday as a selloff in precious metals triggered a flight to safety and investors continue to weigh what a Federal Reserve under Kevin Warsh might look like.
The greenback firmed further after US manufacturing data showed a return to growth in January, although tariffs raised raw material prices and strained supply chains.
“There is a slow-motion flight to safety underway across the currency markets, driven by last week’s implosion in the precious metals complex,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
“We’re seeing a modest hawkish repricing in US growth and policy expectations after manufacturing activity accelerated by far more than expected in January, suggesting that the economy continues to shrug off policy chaos. Risks to the dollar are tilting to the upside.” Commodity-linked currencies were bearing the brunt of selling pressure in what appeared to be a nervous start to a week filled with central bank meetings and top-tier economic data, as well as an election in Japan.
The yen was back on traders’ radars, after Japanese Prime Minister Sanae Takaichi talked up the benefits of a weaker yen in a weekend campaign speech, in a tone at odds with her finance ministry that has worked to stem the yen’s declines.
The dollar rallied on Friday after US President Donald Trump nominated Warsh as the next Fed chair. Analysts assume Warsh will be less likely to press for all-out rapid rate cuts than some other candidates who had been in the running, though he has sounded more dovish than current chair Jerome Powell.
Against a basket of currencies, the dollar was last up 0.42 percent at 97.555.
Market pricing remains for two Fed rate cuts this year, with a move seen as unlikely until June, when Warsh would be chair if confirmed by the Senate.
The euro was comfortably away from the USD1.20 level and was last down 0.42 percent at USD1.1801, while sterling fell 0.26 percent to USD1.3650. Both the European Central Bank and the Bank of England are expected to keep policy rates on hold when they announce their latest decisions on Thursday.
Currencies from economies with greater exposure to commodity prices and risk sentiment were soft on Monday.
The Australian dollar fell 0.14 percent to USD0.6949, ahead of the Reserve Bank of Australia’s rate decision on Tuesday, even with expectations it will deliver a hike.
The kiwi dollar fell 0.32 percent to USD0.5999, while the Canadian dollar weakened 0.38 percent to CD1.367.
Against the Japanese yen the dollar rose 0.57 percent to 155.66 on Monday, with expectations that Takaichi’s party is likely to score a landslide victory in the upcoming lower house election.
A survey by the Asahi newspaper indicated that the Liberal Democratic Party is likely to well exceed a majority of 233 seats out of 465 seats in the lower house.