Dollar steadies after dropping on U.S. political turmoil

EghtesadOnline: The dollar steadied on Monday, edging away from four-month lows against the yen plumbed in the previous session as investors turned their focus from political turmoil in Washington to the Federal Reserve's annual central banking conference in Wyoming.

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21 August 2017

According to Reuters, the dollar was flat on the day at 109.22 yen, after slipping to as low as 108.605 yen on Friday on concerns over President Donald Trump's ability to push through tax reform and stimulus measures.

It largely shrugged off the University of Michigan's consumer sentiment index, which improved to its strongest in seven months, reflecting confidence in the outlook for the economy and in personal finances as the U.S. stock market holds near record highs.

Reports of the impending departure of senior White House adviser Stephen Bannon, known for his economic nationalist views, were confirmed on Friday. Trump's decision to fire Bannon could undermine his support from far-right voters but might ease tensions within the White House and with party leaders.

"In the end, the yen made 'buy-the-rumor, sell-the-fact' moves on Bannon's departure, and the net effect might be neutral as the market has already moved on and is focusing on Jackson Hole," said Mitsuo Imaizumi, chief FX strategist at Daiwa Securities in Tokyo.

"But as the positive economic data apparently had little effect on the dollar, it is possible that no market-moving factors will emerge from the Fed conference," he added.

Fed Chair Janet Yellen is scheduled to speak at the conference. But after minutes from the Federal Open Market Committee's latest meeting showed members expressing concern about soft inflation, she is not likely to give new guidance on policy, Fed observers say.

Comments last week from Fed officials suggested buoyant U.S. stocks, low long-term bond yields and the recently weaker dollar are have crimped the central bank's intentions of raising interest rates again this year even in the face of cooler inflation.

Lower U.S. yields also sapped some of the dollar's appeal. The benchmark 10-year U.S. Treasuries yield skidded to 2.162 percent on Friday, its lowest since late June, before closing at 2.194 percent. It last stood at 2.199 percent.

European Central Bank President Mario Draghi will not deliver a new policy message at the Fed conference, two sources familiar with the situation said, tempering expectations for ECB to start charting the course out of stimulus.

"If any news does emerge from Jackson Hole, thin liquidity in the summer could amplify any market move, so the market will be on edge even with nothing expected," said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings in Tokyo.

About $45 billion of euro-dollar currency options on the exchange rate will expire in the three days leading up to the Wyoming meeting.

On Monday, the euro was steady on the day against its major counterparts at $1.1757 and 128.41 yen.

The dollar index, which tracks the greenback against a basket of six major rivals, was nearly unchanged on the day at 93.448.

Speculators reduced their negative bets on the U.S. dollar this week to $8.84 billion from $10.23 billion in the latest week through Aug. 15, Reuters calculations based on Commodity Futures Trading Commission data showed on Friday.