Dollar extends losses, Korea’s won in focus

TOKYO/GDANSK: The US dollar extended losses on Wednesday following its biggest decline in more than three weeks overnight, after weaker-than-expected US consumer inflation data bolstered the case for Federal Reserve easing just as global trade tensions cool.

The euro was up 0.33 per cent at $1.1222, the pound rose 0.24 per cent to $1.3335, while the dollar fell 0.96 per cent against the Japanese yen to 146.04.

That left the dollar index, which tracks the unit against six main peers, down 0.40 per cent at 100.58.

‘SKEPTICAL AND FEARFUL’

“After the optimism of the past couple of days, the market is back to being very skeptical and fearful, perhaps of the uncertainties that are ahead,” said Rabobank’s head of FX strategy Jane Foley.

“We have certainly seen the dollar behaving as a risky currency” since the tariff announcement on April 2, she said.

Traditionally the dollar appreciates when investors are nervous about global growth, moving in the opposite direction to other ‘risk on’ assets like stocks.

The dollar index rose 1 per cent on Monday and touched a one-month peak on investor hopes a de-escalation in US-China trade tensions would avert a global recession.

But it shed 0.8 per cent on Tuesday after data showed consumer price index increased by 0.2 per cent last month, below expectations of economists polled by Reuters for a 0.3 per cent gain, after a 0.1 per cent dip in March data.

While a soft CPI was the trigger for the correction, a weakening in the dollar shows “a clear preference” for strategic selling of the currency ahead of a potential deterioration in US data, ING currency analyst Francesco Pesole said in a note.

Investors were also digesting news South Korea’s Deputy Finance Minister Choi met with Robert Kaproth of the US Treasury on May 5 to discuss forex markets, which helped send the dollar to its lowest in a week against Korea’s won.

It was last down 1.3 per cent to 1397.35 won.

The talks “seemed to reinforce market suspicions of a US administration that appears to be leaning toward a preference for a weaker dollar. KRW is up over 1 per cent on the day and Asian currencies are leading gains in FX,” said analysts at Scotiabank.

ERRATIC TRADE EDICTS

Thursday is the next significant day for events, with April’s US retail sales, PPI and a speech from Fed Chair Powell.

The US central bank has adopted a wait-and-see stance as it gauges the economic impact of the US tariff campaign.

More clarity over Trump’s often erratic trade edicts could lead the Fed to resume interest rate cuts.

Traders price in about 53 basis points of rate reductions between now and the end of the year, according to LSEG data, and expect the next quarter-point cut in September.