The dollar sank Tuesday as two Republican senators rejected their party’s bill to repeal Obamacare, effectively killing it and throwing Donald Trump’s economic agenda into doubt.
The greenback had soared along with global markets for months after Trump’s November election victory on hopes his big-spending, tax-cutting policies would fire up the world’s top economy and fan inflation.
But an ongoing crisis surrounding the White House has hobbled the tycoon’s presidency, with opposition to his controversial health care reforms — crucial to freeing up cash — raising questions about his ability to push through other big-ticket measures.
While Republicans have 52 of the Senate’s 100 seats, the opposition to the bill from two members last week was followed Monday by two more. Their decision means the bill has no chance of even getting a vote unless Senate Majority Leader Mitch McConnell makes significant changes to woo sceptics.
“Any hopes of dollar support from a successful vote on the Senate’s health-care bill look to be vanishing after today’s news,” Rodrigo Catril, a currency strategist at National Australia Bank in Sydney, told Bloomberg News.
“Near term, the dollar path of least resistance is down.”
The dollar came under pressure as traders eye the Federal Reserve’s timetable for raising interest rates, while Trump struggles and inflation remains subdued.
Recent remarks from Fed boss Janet Yellen indicating the bank will concentrate on prices have tempered rate expectations in recent weeks.
The euro broke above the $1.15 mark for the first time since last June, with eyes on the European Central Bank’s policy meeting later on Thursday.
While ECB chief Mario Draghi is not yet expected to announce any tightening measures, there is speculation it will begin winding down its stimulus programme as the eurozone economy improves.
Eyes on Draghi
“The current market discussion suggests September ECB or even (central bankers’ US gathering at) Jackson Hole will be the platform (to) announce the … easing,” Stephen Innes, senior trader at OANDA, said in a commentary.
“The market believes there is no coincidence in Draghi’s appearance at Jackson Hole,” he added.
The Australian dollar rallied more than one percent to a two-year high above 79 US cents after minutes from the country’s central bank said the economy was picking up and indicated it saw interest rates rising to about 3.5 percent, from the current 1.5 percent.
The pound won fresh support before the release of British inflation data later in the day.
Most equities markets staged a recovery from early big losses but trading floors remain subdued, with few catalysts driving business.
Tokyo’s Nikkei ended 0.6 percent lower, with the strong yen dragging on Japanese exporters. The market was closed for a holiday Monday. Sydney fell 1.2 percent.
But Hong Kong rose for a seventh straight day to put on 0.2 percent, Singapore increased 0.1 percent and Seoul closed marginally higher, while Wellington, Manila and Taipei all rose.
Shanghai ended 0.4 percent higher after the previous day’s sharp losses which had been fuelled by concerns over a crackdown aimed at tackling a debt problem.
In early European trade London and Paris each fell 0.2 percent while Frankfurt was off 0.3 percent.
Key figures around 0820 GMT
Tokyo – Nikkei 225: DOWN 0.6 percent at 19,999.91 (close)
Hong Kong – Hang Seng: UP 0.2 percent at 26,524.94 (close)
Shanghai – Composite: UP 0.4 percent at 3,187.57 (close)
London – FTSE 100: DOWN 0.2 percent at 7,388.71
Euro/dollar: UP at $1.1528 from $1.1479 at 2100 GMT
Pound/dollar: UP at $1.3108 from $1.3057
Dollar/yen: DOWN at 112.20 yen from 112.61
Oil – West Texas Intermediate: FLAT at $46.02 per barrel
Oil – Brent North Sea: UP four cents at $48.46
New York – DOW: FLAT at 21,629.72 (close)