The dollar slid broadly on Monday after U.S. President Donald Trump struck a protectionist tone in his inauguration speech, prompting developed and emerging market currencies to gain.
The drops and gains were due to the Trump administration’s intention, on its first day in office, to withdraw from the Trans-Pacific Partnership, TPP.
In his inaugural address, Mr. Trump pledged to end what he called an “American carnage” of rusted factories, and vowed to put “America first”.
He laid out two simple rules – buy American and hire American.
Mr. Trump also said on Sunday that he planned talks with leaders of Canada and Mexico to begin renegotiating the North American Free Trade Agreement (NAFTA).
Members of the TPP are U.S., Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru.
The pact aims to deepen economic ties between these nations, slashing tariffs and fostering trade to boost growth.
The dollar fell as much as 1.2 per cent against the yen to 113.26 yen, edging towards its seven-week low of 112.57 yen touched on Wednesday.
U.S. stock futures dipped 0.3 per cent, erasing gains made on Friday
The 10-year U.S. treasuries’ yield fell to 2.435 per cent, after having risen briefly on Friday to 2.513 per cent – its highest since January 3.
Japan’s Nikkei dropped 1.1 per cent while shares in Australia dropped 0.8 per cent.
The euro gained 0.5 per cent to $1.0754, its highest level since December 8.
Emerging market currencies gained, with South African rand gaining 0.8 per cent.
The Mexican peso, which has weakened the most on Trump’s protectionist and anti-immigration stance, rose 0.8 per cent to a two-week high of 21.415 per dollar..
Gold hit a two-month high of $1,219.3 per ounce.
European shares were expected to fall, too, with spread-betters looking to a drop of 0.4 per cent in Britain’s FTSE and 0.3 per cent in Germany’s DAX.
“The market is getting nervous about the possibility that the world’s trade might shrink,” said Koichi Yoshikawa, Executive Director of Financial Markets at Standard Chartered Bank in Tokyo.
“Many of his policies, including tax cuts and infrastructure spending, need approval from the senate and that (may not be) easy.
“The markets that had been led by expectations on his policy since the election are now the dragged down by the reality.”
The dollar had soared late last year on expectations that Trump’s pledges to cut taxes and hike infrastructure spending would boost the U.S. economy, spurring inflation and higher interest rates.
But optimism is starting to fade as details of his tax policies remained sketchy. It is not clear if the Congress will agree to any plan that could drastically increase budget deficits.