US Dollar Battered By Mnuchin Comments, Markets Look To ECB

Talking Points:

• Most Asian indexes were lower into the close
• Comments from US Treasury Secretary Steve Mnuchin were behind the damage
• The US Dollar remained under pressure as focus moved to the European Central Bank

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A weaker US Dollar and rising worries about protectionism in Washington is rarely a combination to delight Asian-equity bulls and sure enough it didn’t prove alluring Thursday.

Comments from Treasury Secretary Stevne Mnuchin suggesting that the administration is relaxed about short-term US Dollar weakness have kept the shutdown-battered Greenback on the back foot, even though the Federal Government is back up and running. Mnuchin said in Davos Wednesday that a weaker dollar was "good for us" as it relates to trade and opportunities. He went on to say that longer-term the dollar’s value would reflect economic fundamentals but the foreign exchange community focused on the comment’s first half. The US Dollar index duly dropped to its weakest point since late 2014, taking Asia’s exporter-heavy stock indexes with it. The Nikkei slipped 1.1%, with most other bourses lower, if by a smaller amount. The Kospi in Seoul stood out as the single notable gainer.

The day's main focus is yet to come with the European Central Bank will give its January monetary-policy call later. No changes are expected to still-loose interest-rate settings but the markets are very keen for any clues as to when stimulus might be unwound. The New Zealand Dollar took a hit as inflation data in its home country missed forecasts, possibly causing some investors to rethink the likelihood of any near-term interest rate rises.

The weaker US currency worked its reliable magic on both gold and crude oil prices. Brent crude hit $71/barrel for the first time since 2014 while the yellow metal’s price hit highs not seen for a year and a half.

Still to come Thursday is of course that ECB policy decision but it’s not alone on the schedule. US home-sale and jobless-claim numbers are due, too, as is the leading index.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX