The dollar recovered against its major peers Wednesday after taking a battering the previous day but equity traders were on edge on uncertainty about the prospects of a Donald Trump presidency.
The greenback plunged Tuesday following comments from the US president-elect in an interview that it was too strong and that a weak Chinese yuan was “killing us”, fuelling concerns of a possible currency war.
The sell-off marked a sharp turnaround for the US unit, which has been surging since Trump’s November election on expectations his big-spending, tax-cutting plans will fan inflation and force a Federal Reserve rate hike.
“Traders recognise that and when you throw in levels that were overbought — in a US dollar sense — some sort of retracement was on the cards,” Greg McKenna, chief market strategist at FX and CFD provider AxiTrader, said in a note.
“Add in Trump’s recent rhetoric about the US dollar being too strong — he was talking in context of China in this sense but the message is a broad one — and you get a chance for further US dollar weakness.”
Trump’s comments come days before he takes the oath of office on Friday, with market-watchers hoping his speech will provide some detail on his plans for the US economy as well as his intentions on the global trade front.
On Tuesday Chinese President Xi Jinping warned at the World Economic Forum in Davos against protectionism, alluding to Trump’s plans to tear up global trade deals, saying it was like “locking oneself in a dark room. Wind and rain may be kept outside, but so is light and air”.