Dollar hits four-month low as Trump trade deflates

The dollar slid to a four-month low against a basket of currencies on Monday as investors weighed the prospects of a U.S. fiscal spending boost under President Donald Trump after his failure to push through a key healthcare reform bill.


Trump's inability to deliver on a major election campaign pledge marked a big setback for a Republican president whose own party controls Congress, and raised doubts over whether he will be able to see through tax reforms and a big spike in spending.

The dollar was down 0.5 percent on the day against the basket of other major currencies used to measure its broader strength.

At 99.038 in early London trade, the index had been at its lowest since three days after Trump was elected in November, before recovering to 99.132 by 1145 GMT.

"I think the market is trying to establish whether or not there is too much optimism about reflation priced into the U.S. dollar," said Rabobank currency strategist Jane Foley, in London.

The dollar index had risen to a 14-year high near 104.00 in early January when expectations for inflation-boosting stimulus under the Trump presidency were at their peak, with investors betting big on the so-called "Trumpflation" trade.

Speculators increased bullish bets on the U.S. dollar in the week up to last Tuesday for the third time on the trot, pushing net longs to their highest since Jan. 31, Commodity Futures Trading Commission (CFTC) data showed on Friday.

"Even though the dollar positioning appears to have come off its highest levels, dollar longs remain at historically elevated levels and that suggests that there could still be too much good news regarding reflation in the price," Foley said.

(ST)

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