The dollar edged back down in Asian trade Friday as a Donald Trump-inspired surge petered out with analysts tipping the US unit to continue weakening.
The recovery in the greenback helped Tokyo's Nikkei recover some of the past two day's sharp losses while Hong Kong also bounced back from Thursday's sharp sell-off but other regional equity markets were mixed.
Forex markets have been on a roller-coaster ride the past few days after Treasury Secretary Steven Mnuchin sent the dollar spiraling to multi-year lows by saying at the Davos meeting of business and political leaders that a weaker unit was “good for us”.
That came as Commerce Secretary Wilbur Ross defended this week's stinging US tariffs on solar panels and warned of further retaliation against nations Washington felt had broken the rules, ramping up fears of a possible global trade war.
Traders rushed back into the greenback, though, after Trump, who arrived at the Swiss resort on Thursday, restated traditional US policy of favoring a strong dollar and said Mnuchin's comments were taken out of context.
“You tend not get too many comments on the dollar's value from either treasury secretaries or presidents; it's a rare event,” Shahab Jalinoos, global head of foreign-exchange strategy at Credit Suisse, told Bloomberg News.
“So the market tends to pay attention when they do happen. The market can easily imagine the idea that this White House might well change its stance on the currency.”
However, the recovery soon faded and dollar selling resumed, with the euro heading back to its three-year highs, helped by European Central Bank boss Mario Draghi showing little concern about the effect of a stronger unit on the Eurozone.
But Draghi did voice concern over the “volatility” in currency markets. He spoke after the ECB left its bond-buying stimulus for the Eurozone in place.
Stephen Innes, head of Asia-Pacific trading at OANDA, tipped the greenback to continue falling owing to Trump's desire to help US manufacturers and exporters as part of his America First policy.
“It's obvious to anyone that the US administration trade policy would benefit from the weaker dollar policy, but I suspect Trump's latest … comments are more about optics and little more than a case of temporarily taming the dollar bear ahead of his Davos speech” on Friday, he said.
“The weaker dollar narrative remains intact for 2018.”
While the yen edged back up, it was still off the levels below 109 against the dollar seen in Asia on Thursday, and that game some support to the Nikkei, which ended the morning session 0.2 percent higher.
Hong Kong rose 0.8 percent after sinking almost one percent on profit-taking, while Shanghai and Seoul each added 0.1 percent. Jakarta and Kuala Lumpur also rose while Singapore was flat but Wellington, Taipei and Manila retreated.
Key figures around 0250 GMT
Euro/dollar: UP at $1.2422 from $1.2393 at 2200 GMT
Pound/dollar: UP at $1.4180 from $1.4143
Dollar/yen: DOWN at 109.40 yen from 109.43 yen
Tokyo – Nikkei 225: UP 0.2 percent at 23,703.83 (break)
Hong Kong – Hang Seng: UP 0.8 percent at 32,905.09
Shanghai – Composite: UP 0.1 percent at 3,553.09
Oil – West Texas Intermediate: DOWN 13 cents at $65.38 per barrel
Oil – Brent North Sea: DOWN 19 cents at $70.23 per barrel
New York – DOW: UP 0.5 percent at 26,392.79 (close)
London – FTSE 100: DOWN 0.4 percent at 7,615.84 (close)