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(Bloomberg) -- The dollar pared losses alongside equity markets and Treasury yields. Fallout from New Zealand politics spilled over into currency markets while Catalonia was overlooked.

The Bloomberg Dollar Spot Index declined about 0.1 percent after falling as much as 0.3 percent. The greenback was lower versus seven of its G-10 counterparts. Losses were cushioned by the kiwi’s plunge after the unexpected change in New Zealand’s government. The unwind of New Zealand dollar carry trades may have distorted flows, as that currency dropped by more that 1.5 percent against each of its major peers.

  • The New Zealand dollar dropped by the most since 2016 against the greenback, euro and yen after New Zealand First, a minor nationalist party, threw its support behind the Labour Party, ending the nine-year run of the incumbent National Party. NZD fell on concerns that the new government may shift the mandate of the central bank
  • NZD/USD stayed near a fresh five-month low at 0.7012 reached in early U.S. trading. The pair may find technical support at the May 22 high at 0.6998 as markets await some clarity on the new government’s policies
  • Fed Chair Yellen met with President Trump, who is searching for the next leader of the Fed when her term ends in February. Yellen faced criticism from conservative lawmakers, who circulated a letter against her re-appointment
  • The euro quickly snapped back after briefly plunging amid a round of stop-loss selling after Spain PM Rajoy rescinded self-rule in Catalonia; Spanish stocks declined more than 0.7%, slightly outpacing a broader European equity selloff
  • EUR/USD rebounded from a session low at 1.1768 as traders looked past developments in Spain, and was trading around 1.1828 near the end of the U.S. session. The pair carved out a new daily high at 1.1858 in the middle of the New York morning. The decision on Catalonia proved not to be a significant talking point among investors, said two traders in London who asked not to be identified because they are not authorized to speak publicly EUR absorbed offers at 1.1840 in the move higher and traded above technical resistance at the 55-DMA 1.1841; EUR may meet further resistance at the October high of 1.1880
  • The yen rose amid early risk aversion and on cross-trade unwinds tied to the kiwi and other pairs. Stop-loss sell orders were tripped against the greenback as the yen recouped most of its decline from the prior session. Global equities dropped sharply, taking their cue from a more than 1.9% drop in Hong Kong stocks that appeared to be linked to unwinding of leveraged positions
  • USD/JPY was trading at ~112.65 vs session low at 112.30 reached in U.S. trading after the dollar appeared to trip stop-loss sell orders below the 112.44 base seen in European trading. Overnight, the dollar had extended a gain beyond 113.00 before exporter offers slowed the pair. Additional supply remains in place above 113.30, a trader in London said A weekend election in Japan is expected to return PM Abe to power and strengthen the hand of the LDP-led coalition. The vote and seasonal outflows from Japan, as local investors shift money to higher-yielding offshore investments, could see the yen return to a defensive footing in coming weeks, a trader in London said
  • GBP/USD is trading around 1.3148, near a session low of 1.3135. PM May was set to speak to EU leaders at a dinner Thursday where she will ask that Brexit talks move on to the future trading relationship as soon as possible. Separately, BOE Deputy Governor Cunliffe said the timing of a rate increase is an “open question”

To contact the reporters on this story: Alexandria Arnold in Seattle at abaca3@bloomberg.net, Dennis Pettit in New York at dpettit5@bloomberg.net.

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Greg Chang, Elizabeth Stanton

©2017 Bloomberg L.P.

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