Dollar Drops on Trump Comments as May Boosts Pound: Markets Wrap

(Bloomberg) -- Politics dominated global markets as the dollar weakened after the president-elect called the U.S. currency “too strong” and the pound rallied on British Prime Minister Theresa May’s plans to leave the European Union. Bonds advanced with gold.

The greenback fell against most peers after Donald Trump told the Wall Street Journal its value is too high in part because China holds down its own currency. Sterling posted its biggest rally against the dollar since the global financial crisis and the Bloomberg Commodity Index rose to the highest since July. U.S. stocks retreated, while European shares pared losses.

“The dollar is the guiding light at this point, and all eyes are on the shape U.S. policy will take,” said Fredrik Nerbrand, global head of asset allocation at HSBC Holdings Plc in London. “I would put today’s dollar weakness down to noise rather than a structural shift. If Trump wants to become as growth-generative as he’s planning to be and you don’t have the same fiscal push coming from the rest of the world, then it’s a question of where does the capital flow to. The dollar is the tallest pygmy.”

There’s no end in sight to the impact of Brexit and Trump, twin themes which have dominated markets this year and last. Traders are puzzling over the meaning of the president-elect’s comment ahead of his inauguration Friday, while May’s confirmation that parliament will get a vote on the final Brexit deal added to the pound’s momentum against the greenback.

Currencies

• The Bloomberg Dollar Spot Index retreated 1.3 percent as of 4 p.m. in New York to the lowest in a month. 
• The pound surged 2.9 percent to $1.2403.
• The yen traded at 112.68 per dollar, up 1.4 percent. The currency has strengthened 3.7 percent over seven sessions.

Stocks

• The S&P 500 Index slid 0.3 percent, led by financial and industrial companies.
• The Stoxx Europe 600 index dropped 0.2 percent after clawing back losses of as much as 0.7 percent.

Bonds

• The yield on 10-year Treasuries dropped eight basis points to 2.32 percent, after falling two basis points last week. The securities were shut worldwide on Monday for Martin Luther King Day.
• European bonds rose, with the 10-year bund yield at 0.3 percent.

Commodities

• Gold extended its winning streak to seven days, the longest since November.
• Crude oil added 11 cents to $52.48 a barrel in New York.
• Bloomberg’s commodity index rose for a fifth day.

--With assistance from David Goodman Andrew Reierson Adam Haigh and Neil Denslow

To contact the reporters on this story: Samuel Potter in Dubai at spotter33@bloomberg.net, Natasha Doff in London at ndoff@bloomberg.net.

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Cecile Gutscher, Rita Nazareth