FOREX-U.S. travel ban row halts dollar recovery – Reuters
* Yen moves higher after row over U.S. immigration order
* Moves put focus back on risks of Trump’s protectionism
* Weaker-than-expected U.S. GDP halted dollar gains on Friday
* Monetary policy in focus as BOJ, Fed and BoE meet this week (Adds German inflation data, updates prices)
By Patrick Graham
LONDON, Jan 30 The dollar dipped on Monday as investors sought the traditional security of the Japanese yen after new U.S. immigration curbs put the spotlight back on President Donald Trump’s protectionist bent and the risks it poses for the economy.
The dollar had begun to climb at the end of last week after its worst month in five, as expectations of higher inflation and tax cuts to spur growth under the new president pushed U.S. government bond yields higher.
That was halted by a combination of weaker-than-expected U.S. economic growth data on Friday and the uproar that followed Trump’s order restricting entry to the United States for travelers from seven Muslim-majority nations.
“Concerns on protectionism appear to be rising after President Trump’s executive order to restrict immigration,” said Adam Cole, head of G10 FX strategy with RBC in London.
After an Asian session becalmed by Chinese New Year holidays, the yen rose 0.4 percent to 114.58 yen per dollar in morning trade in Europe. The greenback was flat at $1.0695 per euro and marginally higher at $1.2537 against sterling.
The euro drew some support from a rise in European government bond yields to their highest in a year after regional data showed solid rises in annual German inflation. That came at the start of a week dominated by central bank meetings in the United States, Japan and Britain.
The bond market, however, also suggested euro investors were pricing in more risk from France’s presidential election in April after the selection of a more radical leftist candidate by the French Socialists at the weekend.
A stronger dollar was one of 2017’s big calls for many investment banks and asset managers at the end of last year but that faith has been undermined by worries about how U.S. trade and diplomacy will pan out under Trump’s presidency.
At the top of the list are concerns that the new administration may actively pursue a weaker dollar as part of efforts to change its trading relationship with China and others.
“The weak U.S. GDP is doing the dollar no favours. But it also takes courage to keep buying the dollar, considering what Trump has said about the kind of a currency policy he could pursue,” said Daisuke Karakama, market economist at Mizuho Bank in Tokyo.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Gareth Jones)
Sterling stumbles to first three-day fall of year – Reuters
By Jemima Kelly and Marc Jones | LONDON
Britain’s pound weakened on Monday, marking its first three-day fall against the dollar this year and putting it on the back foot ahead of Thursday’s first Bank of England meeting of 2017.
“Super Thursday” will see the central bank, which cut interest rates to a record low of 0.25 percent after the June referendum on EU membership, present its quarterly inflation report along with its decision on monetary policy.
Inflation has accelerated as sterling has shed 12 percent since the Brexit vote on a trade-weighted basis. This has led to market talk that the BoE may take a more hawkish tilt and even signal that it is moving closer to raising rates from their current record low of 0.25 percent.
A Reuters poll last week, however, found most economists expect the BoE to leave its rates and other stimulus measures unchanged at least until 2019. Even though it is likely to raise its growth forecasts, uncertainty over soon-to-start Brexit negotiations mean it will likely remain cautious.]
“(Bank of England Governor Mark) Carney will probably reiterate his line that there are limits to tolerance of above-target inflation,” said BNP Paribas currency strategist Sam Lynton-Brown.
“If that rhetoric occurs at the same time of potential upward revisions to growth forecasts and maybe even inflation forecasts, that will prompt the market to increase its pricing for the probability of a Bank of England rate hike by the end of this year.”
Sterling slipped off a five-week high of $1.2674 at the end of last week, and by 1545 GMT on Monday had fallen another 0.2 percent on the day to $1.2525, as worries over a travel plan implemented by U.S. President Donald Trump drove a risk-off mode across markets.
Against a broadly weaker euro, the pound inched up 0.1 percent to 85.13 pence, close to a four-week high.
Crédit Agricole FX Strategist Manuel Oliveri forecast sterling would struggle following a recent mini-rally, with Brexit uncertainty to remain the main driver and data also likely to weaken.
“We don’t think the (BoE) inflation report will be a big shock,” he said. “It may sound a bit more hawkish but it still remains cautious.”
“A lot more is needed to push the needle” for the bank to start considering a move in interest rates, he added.
The pound has fallen roughly 19 percent against the dollar since June’s Brexit vote, but for the last few months it has been in a relatively restrained range of between $1.20 and $1.28 and 84 pence and 88 pence per euro.
(Editing by Richard Lough)