The US dollar fell on Tuesday after Wall Street opened lower, prompting a risk aversion movement that benefited safe havens of the Japanese yen and Swiss franc against the greenback.
The Dow Jones Industrial Average, S&P 500 and Nasdaq Compositeall fell more than 2% before recovering before the close. The indices were penalized by disappointing earnings from industry leaders Caterpillar Inc and 3M.
“The stock market has everyone’s attention. The dollar / yen is almost ticking with stocks,” said David Gilmore, partner at FX Analytics.
Although the dollar is also seen as a safe haven currency, weak US markets will still put the greenback at a disadvantage against other safe havens. The dollar fell against the 0.33%, with the latest trading at 112.43 yen. Against the Swiss franc, the dollar lost 8 basis points, last at 0.995 francs.
“Markets are starting to wonder if the good times generated by Trump’s tax cuts and deregulation are in the rearview mirror and what lies ahead is the fallout from protectionist policies, and it has started to eat into the profits of the businesses, ”Gilmore said.
The dollar index, a measure of its value against six major currencies, fell 0.08%.
The euro fell after the European Commission rejected Italy’s 2019 budget and said it would ask Rome to present a new document within three weeks, according to reports by Italian news agency AGI, citing European sources.
The dispute over Italy’s spending plans and doubts over the leadership of the British Prime Minister, who is mired in a Brexit impasse, have investors focus on the likelihood of further political unrest in Europe.
Concerns over Italy’s spending have raised doubts about the European Central Bank’s plan to raise interest rates next summer, which has also hurt the euro. The single currency lost 9 basis points, for the last time at $ 1.1473.
The British pound traded in the European session before retracing those gains, most recently at $ 1.2987 after falling sharply on Monday over fears that the border issue with Northern Ireland and disagreements among Britain’s ruling Conservatives on Brexit does not put Prime Minister Theresa May in the face of a serious leadership challenge.
“The whispers of a growing number of Tory rebels losing patience with May have brought back to the table the risks of a long political stalemate in the UK and a policy error of Brexit (leaving the EU without a deal) “said Viraj Patel, a currency strategist at ING.
“We think that noise is likely to keep the pound on the back foot this week,” he said.