Dollar retraces losses as sterling dives on Boris Johnson exit
The U.S. dollar recovered from a 3-1/2 week low on Monday as the pound dived following the announcement that UK Foreign Secretary Boris Johnson resigned from the government.
Sterling fell to a daily low of $1.3204 after Johnson quit in protest over Prime Minister Theresa May’s plans to leave the European Union. His was the second resignation in a day, leaving the British leader’s Brexit plans in tatters.
Johnson decided to walk just hours after May’s Brexit minister, David Davis, did the same over her EU plans. The pound rose half a percent earlier in the European session as traders focused on the increased likelihood of a “soft Brexit” in which the UK and EU retain close trade ties. But the second exit provoked a risk-off response in the market.
The dollar index rose 0.16 percent against a basket of six major currencies to a daily high of 94.18. Other safe-haven currencies also benefited.
Against the pound, the Swiss franc strengthened to a daily low of 1.312. The sterling/Japanese yen cross rate also fell to a daily low of 146.56.
Earlier in the trading day, the dollar index had fallen 0.4 percent from Friday to 93.713, its lowest since June 14, after U.S. wages indicators disappointed dollar bulls while boosting risk appetite.
In spite of the dollar’s recovery on the back of the pound, the Chinese yuan maintained its gains after it rebounded as investors bought riskier assets following favorable U.S. jobs data last week and evidence that global trade tension has not yet slowed economic momentum.
Friday’s data showed average U.S. hourly earnings gained five cents, or 0.2 percent, in June after rising 0.3 percent in May. This suggested moderate inflation pressures, creating doubt that the Federal Reserve would raise interest rates a total of four times in 2018 .
Nonfarm payrolls rose by 213,000 in June, more than expected, the data showed.
Investors appear to be ignoring the worsening trade conflict between the United States and China after the two countries imposed tariffs on $34 billion worth of each others’ goods on Friday
“There was nothing really surprising” in Friday’s trade announcement, said Omer Eisner, chief market analyst at Commonwealth Foreign Exchange Inc. “Chinas response was measured and as a result I think weve seen the overall risk sentiment in markets improve.”
The yuan rose more than half a percent in offshore markets to 6.6123 against the dollar, putting it on course for its biggest one-day rise in more than three months and further away from June’s lows – its biggest-ever monthly decline.
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