SINGAPORE, Feb 4 — The US dollar was steady today as investors remained cautious after a partial government shutdown swiftly ended while the yen weakened near a two-week low ahead of what is shaping up to be an unpredictable national election over the weekend.

Currency markets were still digesting Kevin Warsh’s nomination by US President Donald Trump as the next Federal Reserve chief, with the dollar broadly firming on expectations that Warsh is unlikely to push for rapid rate cuts.

Investors have also been relieved as the appointment eased some of the concerns over the Fed’s independence after Trump’s constant attacks on the central bank and current Fed Chair Jerome Powell.

The euro was a shade stronger at US$1.1834, while sterling stood at US$1.3715, steady ahead of policy meetings at the European Central Bank and the Bank of England tomorrow. Both central banks are expected to stand pat on rates.

The dollar index, which measures the greenback against six major currencies, was at 97.33, not far from the one-week high of 97.73 it touched on Monday. The dollar strength since the Warsh announcement wreaked havoc in precious metals although they have since recovered somewhat.

The dollar index fell 1 per cent in January after dropping 9.4 per cent last year due to the Fed cutting rates, shrinking interest differentials with other major currencies and as concerns about US fiscal deficits and political uncertainty swirled.

UOB strategists said volatility will likely stay elevated in the run-up to Warsh’s appointment. “This will likely include lots of theatrics during the upcoming Congress confirmation proceedings which may not be a straight-forward process,” they said in a note today.

“In-between a jittery market and an assertive President, the work cuts out for Warsh who needs to prove that he is an objective and steady Fed chair who is able to galvanize the entire FOMC.”

Trump late yesterday signed a spending deal into law that ended a partial US government shutdown after four days, although crucial employment data that was due on Friday will be delayed because of the shutdown.

Japanese election in focus

The yen was 0.3 per cent softer at 156.26 per dollar today, its weakest since January 23, when the currency strengthened sharply from 159.23 amid speculation the New York Federal Reserve conducted rate checks.

The prospect of a joint US-Japan intervention to boost the yen has broadly pulled the currency back from the brink, although the yen’s fate hangs in the balance ahead of this weekend’s Japanese election.

In the national election Prime Minister Sanae Takaichi is seeking voter backing for increased spending, tax cuts and a new security strategy that is expected to accelerate a defence build-up.

“A strong showing by the LDP will embolden Takaichi to advance her budget stimulus plans, raising the risk of a larger government debt burden and weighing on Japanese government bonds and the JPY,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.

Takaichi earlier this week triggered a yen selloff after a campaign speech in which she talked up the benefits of a weaker currency. While she later walked back those comments, worries linger that mixed signals from the prime minister could hurt efforts to support the frail currency.

The Australian dollar was at US$0.7028 after a sharp 1 per cent rise in the previous session as the Reserve Bank of Australia hiked interest rates, leaving markets wagering further hikes would be needed this year. The New Zealand dollar edged lower at US$0.604.

Meanwhile, China’s yuan briefly hit a near 33-month high against the dollar underpinned by firmer central bank guidance, though the fix was weaker than anticipated and viewed by investors as an attempt to keep the currency’s gains in check. 

The yuan has been clocking steady gains pushed up by booming exports and while analysts think authorities will resist further strengthening, risks are to the upside and could test the country’s fragile economy. — Reuters