Dollar dips on Trump comments; sterling heads for biggest rise since 2008

Pound coins are stacked in front of a twenty pound note.
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The fell to a four-week low on Tuesday, moving lower against all Group of 10 currencies with sterling leading the charge after a soothing speech on Brexit from British Prime Minister Theresa May triggered the pound's largest one-day percentage gain since 2008.

A recent sell-off in the dollar deepened as U.S. traders returned from a long weekend to widespread weakness after President-elect Donald Trump said the greenback's strength against the Chinese yuan "is killing us."

The euro rose above $1.07 for the first time since Dec. 8 and the dollar dipped below 113 to its lowest level against the Japanese currency since November.

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Analysts have suggested in recent weeks that the greenback may have hit its peak when it touched a 14-year high earlier this month. Since then, the dollar has consolidated in most currency pairs and against a basket of six major currencies that track its value, hitting its lowest since Dec. 8 on Tuesday.

Trump's comments over the weekend likely exacerbated that in-progress trend, said Vassili Serebriakov, FX strategist at Credit Agricole.

The dollar surged at the end of 2016 on expectations that stimulus promised by Trump on the campaign trail would boost U.S. economic growth and feed demand for the dollar.

But Trump has continued to strike a harsh tone towards Beijing and his protectionist rhetoric is beginning to play a larger role in investors' thinking.

In an interview with the Wall Street Journal Trump said that U.S. companies "can't compete with (China) now because our currency is strong and it's killing us."

The dollar fell as low as 112.74 yen in early North American trading, with investors also citing Trump's tweets criticizing a Republican plan on border tax adjustments which had been expected to support the dollar.

Sterling rose nearly 3 percent against the dollar, touching its highest in nearly two weeks and on pace for its biggest gain in more than eight years.

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Already up more than 1 percent on unexpectedly high December inflation data, the pound spiked higher after May pledged to hold a parliamentary vote on whatever deal Britain eventually reaches to leave the European Union.

"The key event was May's speech," Serebriakov said. "I think it was a case of sell the rumor buy the fact - buy sterling on the speech after selling on the rhetoric, which gave some concessions to the soft Brexit camp and prompted a relief rally in sterling."