NEW YORK, Feb 3 — The dollar advanced broadly against major pairs yesterday as a selloff in precious metals triggered a flight to safety and investors continue to weigh what a Federal Reserve under Kevin Warsh might look like.

The greenback extended its gains after US manufacturing data showed a return to growth in January, although tariffs raised raw material prices and strained supply chains.

The dollar appeared unfazed by the US Bureau of Labour Statistics’ statement yesterday that a partial government shutdown would delay the release of the closely watched employment report for January, which had been due for release this Friday.

“Markets are back to navigating without a clear view of underlying conditions in US labour markets,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“This shutdown should be mercifully brief, limiting the impact on monetary policy expectations and overall trading activity. As investors become acclimated to US government dysfunction, the dollar’s safe-haven credentials are eroding.”

Commodity-linked currencies were bearing the brunt of selling pressure in what appeared to be a nervous start to a week filled with central bank meetings and top-tier economic data, as well as an election in Japan.

The yen was back on traders’ radar after Japanese Prime Minister Sanae Takaichi talked up the benefits of a weaker yen in a weekend campaign speech, in a tone at odds with her finance ministry which has worked to stem the yen’s declines.

Fed pick sparked dollar rally on Friday

The dollar rallied on Friday after US President Donald Trump nominated Warsh as the next Fed chair. Analysts assume Warsh will be less likely to press for all-out rapid rate cuts than some other candidates who had been in the running, though he has sounded more dovish than current chair Jerome Powell.

Against a basket of currencies, the dollar rose 0.44 per cent to 97.64.

Market pricing continues to indicate two Fed rate cuts this year with a move seen as unlikely until June, when Warsh would be chair if confirmed by the Senate. 

“USD is finishing strongly and the momentum indicators give plenty of room for additional dollar gains,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

The euro retreated further from the US$1.20 level, falling 0.53 per cent to US$1.1788, while sterling dropped 0.19 per cent to US$1.3661. Both the European Central Bank and the Bank of England are expected to keep policy rates on hold when they announce their latest decisions on Thursday.

Commodity currencies soft

Currencies from economies with greater exposure to commodity prices and risk sentiment remained soft yesterday.

The Australian dollar fell 0.22 per cent to US$0.6944, ahead of the Reserve Bank of Australia’s rate decision today, even with expectations it will deliver a hike.

The kiwi dollar fell 0.35 per cent to US$0.5997, while the Canadian dollar weakened 0.5 per cent to CUS$1.369.

Yen weakens

Against the Japanese yen the dollar rose 0.57 per cent to 155.64 yesterday, with expectations that Takaichi’s party would score a landslide victory in the upcoming lower house election.

A survey by the Asahi newspaper indicated that the Liberal Democratic Party is likely to well exceed a majority of 233 seats out of 465 in the lower house.

Investors have sold the yen and Japanese government bonds in the run-up to the election on expectations of more expansionary fiscal policy should Takaichi win a strong mandate, and that the tax cuts her party has touted would further strain already stretched government finances.

Still, the ailing yen has found a floor recently as traders remain on alert to the prospect of coordinated currency intervention by the US and Japan, after talk of rate checks from both sides late last month sent the currency surging. — Reuters