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Dollar and sterling react to Trump and May

Wednesday 02:20 GMT

Overview

Currency movements once again dominated trading in Asia as markets reacted to UK Prime Minister Theresa May’s Brexit blueprint and unexpected criticism of the dollar’s strength from US president-elect Donald Trump.

Hot topic

The dollar index, which measures the US currency against a basket of peers, was up 0.1 per cent at 100.470. It fell 0.8 per cent on Tuesday after comments from Mr Trump suggesting the dollar was “too strong” for US companies to compete with their Chinese rivals.

That comment, contravening decades of US economic policy, along with details laid out by Mrs May in her Brexit speech, helped push the pound up 3.1 per cent against the dollar overnight, although the UK currency was pulling back in Asian trading, down 0.5 per cent at $1.2355.

Analysts at ANZ said the pound’s sharp rise after Mrs May’s speech suggested the prospect of a hard Brexit had already been priced in, at least for the time being. “It would appear that markets will need something fresh to trade off of if sterling is to go lower in the near term, and it is possible that the forthcoming negotiations (once Article 50 is triggered) could provide that,” they wrote.

Forex

Other currencies in the Asia-Pacific region were also walking back some of the previous day’s gains, with the South Korean won the only major winner, rising 0.7 per cent to Won1,166.25 per dollar.

The yen was off 0.4 per cent at ¥113.04 per dollar on Wednesday morning after a rally the previous day pushed it to close 1.4 per cent stronger. The Australian dollar was in similar straits, off 0.3 per cent against the dollar at $0.7544 after rising 1.2 per cent on Tuesday.

The renminbi was 0.1 per cent weaker in onshore trade at Rmb6.8541 per dollar after gaining 0.8 per cent on Tuesday and despite a stronger daily fix for the currency’s dollar trading band from China’s central bank.

The euro was also retreating from its Tuesday rise of 1.1 per cent, shedding 0.2 per cent to $1.0695.

Equities

A strong yen continued to batter shares in Tokyo as the broad Topix index dropped 0.5 per cent with losses across all segments, bringing the benchmark 2.8 per cent lower for the week so far. A 0.3 per cent dip by the price-focused Nikkei 225 Index likewise brought it down 2.8 per cent since Friday’s close.

In Australia the S&P/ASX 200 was also faring poorly, down 0.6 per cent with the largest losses concentrated in financial and healthcare stocks.

Shares in Hong Kong appeared to benefit from the currency’s dollar peg in morning trade as the benchmark Hang Seng index jumped 1.1 per cent. Shares in Orient Overseas Container Line jumped as much as 11.3 per cent on reports state-run Chinese shipping conglomerate Cosco was planning a bid for the company.

In mainland China the Shanghai Composite Index registered a 0.3 per cent gain and the Shenzhen Composite dropped 0.3 per cent.

Fixed income

Sovereign bond markets were settling down after Tuesday’s gains, with the yield on 10-year US Treasuries, which moves inversely to price, rising 1 basis point to 2.3362 per cent. The yield on Japanese government bonds rose by the same amount to 150.44 per cent after a 10-basis point rise on Tuesday.

Yields on 10-year UK gilts and Australian government bonds were virtually flat in Asia trading on Wednesday after both gained 5 basis points the previous day.

Commodities

Crude prices were picking up the pieces after falling back from greater gains. Brent crude oil was up 0.1 per cent at $55.53 a barrel after an intraday rise on Tuesday of 2 per cent gave way to a 0.7 per cent fall at the close. West Texas Intermediate, the American benchmark, was up 0.1 per cent at 52.52 in morning trade, having retreated from a similar peak to close the day before just 0.2 per cent higher.

Gold shed 0.3 per cent to $1,213.65 an ounce after investors sought safety in the yellow metal amid market uncertainty that helped it rise 1.2 per cent on Tuesday.

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