Dollar drops as White House turmoil alarms investors

Donald Trump is facing his deepest crisis yet after a memo written by then-FBI Director James Comey surfaced on Tuesday, alleging that the president asked him to drop an investigation of former National Security Adviser Michael Flynn.

Responding to the political tumult in Washington, Wall Street ended Wednesday sharply lower while the dollar's value plummeted. "U.S. stocks trade off earnings, earnings are linked to growth, and I don't think it's going to have a meaningful impact on growth". Expectations for a rate increase by the Fed had eased in the wake of lackluster data on US inflation and growth in recent weeks, as well as news about President Donald Trump's firing of FBI Director James Comey and possible ties between members of his administration and Russian Federation.

The 10-year notes were down 5/32 in price to yield 2.23 percent, up from 2.22 percent late on Wednesday. The dollar sank 0.75 per cent against the Swiss franc, falling to its lowest since November 9.

The Justice Department on Wednesday named former Federal Bureau of Investigation chief Robert Mueller as special counsel to investigate alleged Russian interference in the 2016 USA election and possible collusion between Trump's campaign and Moscow. On the data front, the number of Americans applying for jobless benefits fell to a 28-year low and the Philly Fed's business index came in at double economists' expectations The euro 0.45 percent against the dollar to $1.1105.The dollar index, which tracks the greenback against six currencies, rose 0.1 percent.

The Dow Jones fell 1.8% to 20,609, and tech-heavy Nasdaq lost 2.6% to 6,011. The Australian dollar decreased to 0.7425 USA dollar from 0.7434 US dollar. The UK's FTSE index was trading lower by 0.04 percent, while French CAC 40 Index fell 0.44 percent. The dollar fell by as much as 1.45 percent against the yen, beaching through the 112 yen level to last trade at 111.00 yen.

The dollar index, which tracks the greenback against six major rivals, fell as low as 97.333 .DXY on Wednesday, its lowest level since Nov. 9, having given up all the gains it had made following the US presidential election in November. Japan's Nikkei 225 dropped 0.5 percent, while South Korea's Kospi dipped 0.1 percent.

In the meantime, the current bout of risk aversion has brought safe havens back in favour with traders. Gold also shot up 1.8 percent, to $1,259.00 an ounce.

"The bigger picture here is it puts another dent in the likelihood of getting a congressional majority to pass Trump's agenda", said R.J. Grant, director of equity trading at KBW Inc.

A mini-recovery in Asia as Japan posted its best economic performance in a year ran out of steam in Europe, and it was limping sideways at $1.1136 per euro and buying 110.97 Japanese yen by the time US traders got to their desks.

Investors have been shocked by the news and anxious Trump's ability to deliver on business-friendly policies.

Asian stocks climbed to a fresh-two year high on Tuesday on the back of an overnight rise in Wall Street, while oil extended gains after major producers Saudi Arabia and Russian Federation pledged to push for an extension of supply cuts into 2018.

In Hong Kong, the broader market rose to its highest level since June 2015 on the back of extended buying into Chinese lenders and market heavyweight Tencent before declining 0.3 percent. U.S. West Texas Intermediate (WTI) crude futures were up 0.4 percent at $49.03 per barrel.

June 2017 3-year bond futures contract at 98.21 (implying a yield of 1.79pct), unchanged from Wednesday.

The Australian dollar is higher though, with better-than-expected jobs numbers for April taking it to a two week high of around 74.5 U.S. cents.

  • Zachary Reyes