Dollar Struggles to Rise Amid Uncertain Fate of Health-Care Bill – 23 March, 2017
The dollar swung between gains and losses as investors monitored the prospects of the Republican health-care reform bill.
The day’s modest foreign-exchange trading flows were mostly driven by fast-money accounts, traders said, with the busiest price action in the yen and the British pound. The dollar gained most against its Australian counterpart, which struggled to pare an overnight drop. A vote on the health-care bill expected for later Thursday was delayed as deliberations among Republican lawmakers continued.
- Traders tried to decipher developments in Washington to gauge the prospects for the health-care bill. Republican officials worked to drum up support as reports suggested lukewarm backing for the plan. News interpreted as signaling increased enthusiasm gave the dollar a boost while anything that implied possible delay knocked the dollar lower.
- Although USD/JPY is seen as a cleaner way to trade expectations for the plan, that currency pair’s sensitivity to swings in the Treasury yield complicated the price action as yields rose to a fresh intraday high above 2.4350%. The dollar earlier had fallen to a fresh YTD low vs the yen after the GOP postponed a meeting on the bill as leaders sought to twist arms and as the Treasury yield dropped under 2.39%. A later dollar rebound fizzled after a report said the right-wing Freedom Caucus left a meeting at the White House with no deal in hand.
- Treasury yields rose after a midday report said San Francisco Fed president John Williams sees three or more rate increases in 2017.
- From a broader perspective, the dollar was little changed as measured by the Bloomberg dollar index, though wider moves are likely once the fate of the health-care bill becomes clear. Passage of the bill may clear the path for early fiscal stimulus, likely reigniting the Trump reflation trade that boosted the dollar after Election Day, while any lengthy delay will likely see a further reversal of that flow.
- USD/JPY is trading ~110.97 after rebounding off a session low of 110.63 and as bids in the 110.50/75 zone cushioned the drop, according to traders in Asia and London familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. USD/JPY may also find technical support ~110.00, where option-related bids are positioned and which represents the 50% mark of the post-election USD rally.
- EUR/USD has orbited a tight range around 1.0780 from the start of the U.S. session, close to a session low at 1.0768 while also not far removed from its high at 1.0805. Bids to buy EUR are at a distant 1.0725 while offers to sell are lined up ahead of the 2017 high at 1.0829, as has been the case all week
- GBP/USD rose to a fresh high at 1.2531, extending gains that began after U.K. February retail sales handily topped forecasts, dispelling concerns about the health of the U.K. consumer as the Brexit process begins.
Source: Bloomberg