London (AFP) – The dollar recovered against its major peers Wednesday after taking a battering the previous day, while the pound fell back having surged on the UK’s Brexit plans.
European stock markets were largely steady around midday following gains for Asian indices.
“The FTSE 100 has given up early gains despite the pound continuing to pull back from yesterday’s strong rally, the index hindered by a Pearson profits warning and weakness among miners and financials,” said Mike van Dulken, head of research at Accendo Markets.
Shares in UK publisher Pearson plunged up to 28 percent after it issued a profit warning and said it would sell holdings in Penguin Random House, a joint venture with German media company Bertelsmann.
“The rising anxiety and uncertainty ahead of Donald Trump’s inauguration this coming Friday has exposed the greenback to heavy losses,” said FXTM Research analyst Lukman Otunuga.
“With optimism slowly fading over the series of interest rate hikes under Trump and the lack of clarity provided on the proposed fiscal stimulus measures weighing on sentiment, the dollar may find itself vulnerable to further losses,” he added.
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.
Trump’s comments came 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”.
– ‘Brexit vote positive’ –
In European trade Wednesday the dollar was up on the yen, euro and pound but struggled against higher-yielding units including South Korea’s won, the Australian dollar and Malaysian ringgit.
The pound fell on profit-taking during a volatile week for the currency. Having plunged Monday to October lows against the greenback on worries about Britain’s plans for a clean break from the European Union, it bounced back sharply Tuesday.
This was after British Prime Minister Theresa May set out her plan to leave the customs union and single market in a so-called “hard Brexit”, and promised to let parliament vote on the deal.
“May’s announcement that both houses of parliament will vote on the final Brexit deal is positive for the pound, as the process, at a minimum, should ensure that the most severe outcomes are avoided,” said Oanda trader Stephen Innes.
Sterling shot up three percent — its biggest gain since 2008 — to more than $1.24 following her remarks, having plunged below $1.20 Monday as news emerged of her plans.
“There is nothing like clarity to turn around a market,” said McKenna.
In Asia Wednesday, Hong Kong rallied 1.1 percent, boosted by a flood of mainland Chinese investors picking up stocks considered cheap compared with those north of the border, while a pick-up in the yuan eased fears about the mainland economy.
– Key figures around 1115 GMT –
London – FTSE 100: UP 0.2 percent at 7,234.17 points
Frankfurt – DAX 30: UP 0.1 percent at 11,554.81
Paris – CAC 40: DOWN 0.4 percent at 4,841.05
EURO STOXX 50: FLAT at 3,285.44
Tokyo – Nikkei 225: UP 0.4 percent at 18,894.37 (close)
Shanghai – Composite: 0.1 percent at 3,113.01 (close)
Hong Kong – Hang Seng: UP 1.1 percent at 23,098.26 (close)
New York – Dow: DOWN 0.3 percent at 19,826.77 (close)
Pound/dollar: DOWN at $1.2310 from $1.2409
Euro/dollar: DOWN at $1.0690 from $1.0712
Dollar/yen: UP at 113.23 yen from 112.65 yen
Oil – West Texas Intermediate: DOWN 76 cents at $51.72 per barrel
Oil – Brent North Sea: DOWN 72 cents at $54.75
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