The US dollar slid to a 10-month low against a basket of currencies yesterday as the failure of Republicans to push through healthcare reform cast doubts over the likelihood of the Trump administration’s infrastructure and tax reform agendas.
The S&P 500 was little changed for the session, however, remaining within touching distance of Friday’s record close. Technology stocks in particular continued their recent trend of outperformance as the tech-heavy Nasdaq index rose to a new high.
The leg lower for the dollar coincided with a drop in bond yields. The yield on 10 year US Treasury bonds fell 5bps to 2.26%. In oil markets, rumours that Saudi Arabia was considering a cut to exports helped Brent crude recover some of the previous days declines. Oil prices ultimately settled 0.9% higher.
The strength of the euro weighed on European equity markets yesterday. The Euro Stoxx 50 index declined 1.1% and the German DAX – which contains a number of large export-sensitive stocks – fell 1.3%.
Euro/Dollar traded within a whisker of $1.16 yesterday – a key technical level – placing further importance and investor focus on the language used and any signals of policy changes from Mario Draghi at the ECB meeting tomorrow.
Sterling generally bucked the trend as it traded 0.1% lower against the dollar. Weaker than expected UK inflation data was interpreted as giving the Bank of England some breathing space in its interest rate policy.
Asian equities finished higher overnight as the dollar recovered from a 10-month low. Chinese equities were the standout performer, gaining 1.4%, while Japanese indices were buoyed by weakness in the Yen.