USD extends gains as Asia FX underperforms – Scotiabank

Solid gains for the US Dollar (USD) yesterday reflected renewed tariff concerns, weaker stocks and underperforming alternative havens, such as gold, Scotiabank's Chief FX Strategist Shaun Osborne notes. 

USD holds gains amid tariff focus and equity market weakness

"The USD remains firm this morning but is trading off its highs. Asian stocks plunged and European markets are soft while US equity futures are modestly higher at writing. Still, amped up tariff threats are having an impact on risk sentiment and price action (in the S&P 500) is clearly challenging the recent bull run. The 'disciplining' effect of markets might yet have a say on how the US proceeds with tariffs." 

"The MXN and CAD are moderate outperformers through the overnight session so far, in fact, and trade little changed on the mostly firmer USD. Asian regional FX and the CHF are underperforming. Bond markets are trading mostly higher, nudging yields 1-2bps lower on the day. In broad terms, spreads continue to narrow against the USD, suggesting some fundamental restraint on gains—were it not for the largely headline-driven nature of market moves at the moment." 

"Intraday price action does suggest the DXY’s rise is stalling near 107.5 which may prompt some consolidation or sideways movement in FX overall into the weekend. This morning’s US Personal Income and Spending data is expected to reflect a 0.4% gain in income and a 0.2% rise in spending in January. The core PCE deflator is forecast to show a 0.3% rise in the month—still a little on the warm side—but a moderation in the pace of Y/Y gains to 2.6% (from 2.8%)."