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Dollar weaker in Asia after NKorea nuclear test, euro gains

9/4/2017, 3:22:43 PMBasics of Trading
 Dollar weaker in Asia after NKorea nuclear test, euro gains

The dollar held weaker in Asia on Monday as North Korea at the weekend claimed it tested a hydrogen bomb, drastically raising tensions with South Korea, Japan and the United States and also angering ally China.

President Donald Trump and his national security team, U.S. Defense Secretary Jim Mattis said Trump asked to be briefed on all available military options.

"Any threat to the United States or its territories, including Guam or our allies will be met with a massive military response, a response both effective and overwhelming," Mattis said. Investors are keeping an eye on a U.N. Security Council meeting later on Monday for a new set of sanctions on Pyongyang and a possible sterner stance by erstwhile ally China.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, dropped 0.25% to 92.59.

USD/JPY changed hands at 109.72, down 0.49%, while AUD/USD traded at 0.7960, down 0.10%. EUR/USD also showed gains, up 0.21% to 1.1885.

In Australia, business inventories for the second quarter fell 0.4% as expected and from a 1.2% rise in the previous period. As well, company gross operating profits eased 4.5%, more than the 4.0% decline seen in the second quarter, and compared to a 6.0% increase previously.

Ahead this week is Thursday’s ECB meeting for fresh clues on when the central bank will shift away from its ultra-easy policy. In the U.S., a report on service sector growth will be the highlight of the holiday-shortened week.

On Monday, the UK is to release data on construction activity figures and financial markets in the U.S. and Canada are to be closed for the Labor Day holiday.

Last week, the dollar pushed higher against a basket of the other major currencies on Friday despite a weaker-than-expected U.S. jobs report which underlined skepticism over the possibility of a third rate hike by the Federal Reserve this year.

For the week, the index was up 0.1% after ending the month of August lower, its sixth consecutive monthly decline, notching up its longest losing streak in a decade. The index is down 9.7% so far this year.

The U.S. economy added 156,000 jobs in August from the prior month, while the unemployment rate ticked up to 4.4%, the Labor Department said.

Economists had expected 180,000 new jobs and an unemployment rate of 4.3%.

The report indicated that the Fed may be more reluctant to raise interest rates again before the end of the year. Diminished expectations for a third rate hike this year have weighed on the dollar by making U.S. assets less attractive to yield-seeking investors.

The dollar found some support after another report from the Institute for Supply Management showed that manufacturing activity in the U.S. reached a six-year high in August.

The euro was lower on Friday, after posting its sixth straight month of gains in August as investors positioned ahead of a European Central Bank meeting next week, where policymakers are expected to discuss the currency’s strength.

Hopes that the ECB will soon announce plans to taper its bond-buying stimulus program have driven the euro up around 12% against the dollar so far this year