Dollar gains after two-day drop, US stock futures dip

Synopsis

A gauge of the dollar rose 0.3% after declining Monday as speculation around potential trade deals sparked an extraordinary spike in Taiwan’s dollar and resonated across global foreign exchange markets. The MSCI Emerging Markets Currency Index rose 0.6% to a record. US stock futures edged lower after the S&P 500 halted its longest rally in about 20 years. There’s no cash trading in Treasuries during the Asian day as Japan is closed for a holiday.

The dollar gained in early Asian trade after a two-day slide as investors across Asia stayed focused on exacerbated currency appreciations from Taiwan to Malaysia.

A gauge of the dollar rose 0.3% after declining Monday as speculation around potential trade deals sparked an extraordinary spike in Taiwan’s dollar and resonated across global foreign exchange markets. The MSCI Emerging Markets Currency Index rose 0.6% to a record. US stock futures edged lower after the S&P 500 halted its longest rally in about 20 years. There’s no cash trading in Treasuries during the Asian day as Japan is closed for a holiday.

Trump’s aggressive trade talk has rattled markets since he took office in January, undermining the dollar’s traditional haven role in times of stress and leading investors to allocate away from US assets. Central bankers from Taiwan to Hong Kong and financial officials are responding to the sharp appreciation in local currencies by intervening in the market.

Currency revaluation across Asia “could be a significant development not just in driving the dollar lower, but also in the trade negotiation process and accelerate the idea of trade deals,” Chris Weston, head of research at Pepperstone Group, wrote in a note.

Hong Kong authorities spent a record amount in an attempt to defend the foreign-exchange peg. The yen rallied 0.9% on Monday, leading the advance among a Group-of-10 peers, while the euro pushed above the 1.13 per dollar mark. The Malaysian ringgit strengthened for fifth consecutive day.

“I would be cautious about leaning in too much into this appreciation as central banks in Taiwan, Malaysia and especially Hong Kong have significant means to buy dollars if they need to,” said Leah Traub, a portfolio manager and head of the currency team at Lord Abbett & Co.

Investor hopes that President Donald Trump may start to pull back from launching new fronts on his trade war were dashed when he announced plans to impose a 100% tariff on films produced overseas sending shares of Netflix Inc. and Warner Bros. Discovery Inc. lower. While Trump suggested some trade deals may come as soon as this week, there was no indication of an imminent accord with China.

In late hours, Ford Motor Co. pulled its financial guidance and said auto tariffs will take a toll on profit. Palantir Technologies Inc.’s dropped more than 8% in late trading Monday after its results failed to live up to investors’ loftiest expectations for a company whose stock has led the S&P 500 in gains this year.

Attention will soon shift to Wednesday’s Federal Reserve decision after bond traders dialed back rate-cut bets that had steadily mounted as Trump’s trade war unleashed havoc in financial markets.

After piling into short-term Treasuries, anticipating the Fed would start easing policy soon to contain the fallout, traders reversed course. Two-year yields rose for a third consecutive session - the longest run since December - as traders bet policymakers will remain in wait-and-see mode until there’s more clarity on the impacts of tariffs.

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