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The dollar remains under pressure from comments from US Treasury Secretary Mnuchin

Japan reported its December trade balance; Eurozone reported flash manufacturing PMI at 59.6 vs. 60.3 expected

UK reported December strong labor market data

Mexico mid-January CPI is expected to rise 5.62% y/y; Brazil court rules on Lula

The dollar is broadly weaker against the majors after US comments welcoming a weaker dollar.

Aussie and yen are outperforming, while the euro and Nokkie are underperforming.

EM currencies are broadly firmer.  THB and PLN are outperforming, while RUB and TWD are underperforming.  MSCI Asia Pacific was up 0.2%, with the Nikkei falling 0.8%.  MSCI EM is flat on the day, with the Shanghai Composite rising 0.4%.

Euro Stoxx 600 is up 0.1% near midday, while S&P futures are pointing to a higher open.

The 10-year US yield is up 1 bp at 2.63%.  Commodity prices are mostly higher, with WTI oil up 0.1%, copper up 1.5%, and gold up 0.7%.

The dollar remains under pressure, with this latest wave of selling brought on by comments from US Treasury Secretary Mnuchin.  Whilst in Davos, he noted that

“Obviously a weaker dollar is good for us as it relates to trade and opportunities.”

While Mnuchin was only stating the obvious, Treasury Secretaries since Robert Rubin have never deviated from the strong dollar mantra.

That mantra has never really meant much, but to deviate from it suggests that US policymakers desire a weaker dollar.  Rubin started this “policy” after his predecessor Lloyd Bentsen used the exchange rate to pressure Japan into opening its markets.

Mnuchin’s comments pack an even bigger punch coming after the US trade actions announced this week.

The market responded by taking the greenback to new multi-year lows against the euro and sterling while pushing it below the JPY110 level for the first time since last September.

The comments came on the heels of US trade actions yesterday, and this has become latest element of the narrative the seeks to explain the dollar’s slide and the decoupling of the greenback from interest rates.  The euro reached a high near $1.2355 and sterling reached nearly $1.4120.  The dollar eased to almost JPY109.50.

The price action brings new option strikes into view.  There is a little more than $500 mln on a JPY109.20 strike that will be cut in NY today and another $400 mln near JPY110.80.

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