Dollar Holds Losses Amid Political Turmoil; Yen Trims Gains

(Bloomberg) -- The dollar nursed slight losses, while the yen and Treasuries declined, after reports that White House adviser Steve Bannon is leaving the Trump administration following weeks of a rumored departure.

Risk appetite improved on confirmation of Bannon’s departure, as the market had been digesting speculation of his pending move for much of the morning. The yen pared gains versus the dollar and declined against most G-10 peers. The Bloomberg Dollar Spot index declined more than 0.3 percent on the day but was still on track to end the week 0.1 percent higher.

• Recent turmoil surrounding the Trump administration coupled with the terror attack in Spain has kept investors wary. Before rebounding, USD/JPY fell to its lowest since April 19 at 108.60 as traders sought havens and former presidential candidate Mitt Romney became the latest to criticize President Trump’s response to the violence in Virginia last week
• Upcoming military exercises near the Korean peninsula may be a catalyst for fresh rhetoric, or worse, from North Korea, but don’t appear to be a driving force for markets currently. Trump will meet with his defense and foreign policy teams this weekend at Camp David, though the main topic is expected to be the war in Afghanistan
• The dollar is lower vs all of its G-10 peers save the Swiss franc. U.S. Treasuries are also down, with 10Y UST yields rising to as high as 2.2097%
• USD/JPY is trading near 109.20 after rebounding to a new session high of 109.60. USD/JPY stop-loss orders were tripped above 109.10 to 109.30 and beyond as intraday shorts scrambled for cover after the pair snapped back from a 4-month low at 108.60, a trader in New York said. Pair trades heavy and risk could be for renewed haven demand as the U.S.-South Korea military exercises get underway
  • TD Securities strategist Mark McCormick says USD/JPY appears cheap as high-frequency fair value modeling suggests the pair should be around 112.50; “it is all risk appetite now,” he said in an interview
• EUR/USD is trading around 1.1765, buffeted by cross flows after rising to an overnight high at 1.1774 on buying from hedge funds, according to traders in Europe. Offers to sell the euro are positioned at 1.1780 and 1.1800, traders said

To contact the reporters on this story: Alexandria Arnold in Seattle at abaca3@bloomberg.net, Dennis Pettit in New York at dpettit5@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Greg Chang, Vivien Lou Chen