The dollar sagged against its major peers on Wednesday after US President Donald Trump and his top economics adviser took aim at the currency policies of key US trade partners, further raising concern that Washington was poised to actively weaken the greenback.
Trump and trade adviser Peter Navarro had on Tuesday criticised Germany, Japan and China, saying the three key US trading partners were engaged in devaluing their currencies to US disadvantage.
“Every other country lives on devaluation,” Trump said.
“You look at what China’s doing, you look at what Japan has done over the years. They -- they play the money market, they play the devaluation market and we sit there like a bunch of dummies.”
The dollar fell 0.9 per cent against the yen on Tuesday in the wake of Trump’s remarks, briefly touching a two-month low of 112.080. It pulled back a little to last trade at 112.705.
China’s offshore yuan rose about 0.4 per cent overnight.
The euro was steady at $1.0803 following a 1 per cent gain overnight when it scaled a seven-week peak of $1.0812.
The common currency received a boost after Navarro told the Financial Times that Germany is using a “grossly undervalued’’ euro to gain advantage over the United States and its own European Union partners.
“It is becoming clear that the Trump administration is one that will pursue a weaker dollar and criticise the currency policies of others,” said Shin Kadota, senior forex strategistat Barclays.
“Under such conditions, US yields and the dollar are losing their correlation. Any rise in yields resulting from monetary policy expectations will no longer be able to support the dollar as much.”
With Trump grabbing much of the headlines, the Federal Reserve’s policy decision due later in the day was relegated to a side event.
The Fed is expected to keep interest rates unchanged when it concludes its two-day meeting later on Wednesday, in its first policy decision since Trump took office, as the central bank awaits greater clarity on his economic policies.
The dollar index against a basket of major currencies was up 0.1 per cent at 99.556 after falling nearly 1 per cent overnight to its lowest level since December 8.
The Australian dollar, sensitive to shifts in risk sentiment, was down 0.2 per cent at $0.7577. The New Zealand dollar was 0.3 per cent lower at $0.7290.