LONDON (Jan 17): Grumbles from Donald Trump about the strength of the dollar pushed the currency down for the seventh day in the past ten on Tuesday, while the pound climbed off a three-month low before a keynote speech on Brexit from Britain's Prime Minister.
Concerns over U.S. President-elect Trump's protectionist policies have sapped the dollar going into his inauguration this week.
The shift has been most pronounced against the yen and the dollar dropped 0.9% to a five-week low of 113.04 yen in early European trading.
That came in tandem with a 0.5% fall against the euro , which was buying US$1.0661, and against sterling after the British currency took a beating on Monday on fears that a speech by PM Theresa May will signal the UK is heading for 'hard' exit from the EU.
The pound was up over 1% to US$1.2187 and half of one percent against the euro at 87.95 pence per euro, as Britain's strongest inflation data in 2-1/2 years also gave it a lift.
"There is obvious uncertainty ahead of Theresa May's Brexit speech, but what can this thing contain that we are not already fearful of," said Saxo bank's head of FX strategy John Hardy, adding it could be a case of sell the rumour, buy the fact.
"Other than that the dollar is on the back foot. The market is wondering whether the Trump inauguration is a pivot point (for the dollar)."
Having labelled China a currency manipulator, Trump has continued to strike a firm tone towards Beijing as he prepares to move into the White House this week.
In an interview with the Wall Street Journal he said: "I would talk to them (China) first," but "our companies can't compete with them now because our currency is strong and it's killing us."
The euro, which is up more than 3% against the dollar over the last month, was also being helped by data. ECB figures showed euro zone banks expect a pick-up in loan demand, while European car sales rose sharply in December.
On sterling, options pricing suggested markets were still preparing for large swings over the next 24 hours: overnight implied volatility — which allows investors to bet or hedge against moves in the currency — was well above 20%.
Analysts from the major banks with the most data on investment flows say a lot of profit has been taken on the record-breaking bets against the pound over the past year, and official futures market numbers show short positioning is just two-thirds of that in October.
That leaves plenty of room for investors to bet against the pound on Tuesday, although early deals in London were dominated by players taking more profit on the bullish dollar trades that have dominated the past two months.
"This (bounce) is chiefly a function of the dollar move this morning," said Richard Benson, co-head of portfolio investment with currency fund Millennium Global in London.
"We have taken back all of the move from yesterday morning. The (May) speech has been so well telegraphed that I think people (betting against sterling) realise that is dangerous."