Sterling was the star performer on the US dollar's big slump - Westpac

Analysts at Westpac explained that the US dollar slumped after comments in Davos from US Treasury Secretary Mnuchin suggested benign acceptance of the recent slide in USD and a departure from the "strong dollar" mantra of Treasury secretaries before him. Markets await the outcome of the ECB meeting today and of course US President Trump's speech tomorrow.

Key Quotes:

"The US dollar slumped after comments in Davos from US Treasury Secretary Mnuchin  suggested benign acceptance of the recent slide in USD and a departure from the “strong dollar” mantra of Treasury secretaries before him. Markets await the outcome of the ECB meeting today and of course US President Trump’s speech tomorrow. NZ CPI is also out today and it can give a ‘bias’ on Australian CPI due next Wednesday.

The USD slumped after US Treasury Secretary Mnuchin told reporters at the World Economic Forum in Davos that, “obviously a weaker dollar is good for us as it relates to trade and opportunities.” Mnuchin added that the dollar’s short term value, “is not a concern of ours at all”. The USD, already reeling in the new year, sank to a three year low. Mnuchin’s comments give the impression of benign acceptance of the recent slide in USD and are a departure from the “strong dollar” mantra of Treasury secretaries before him, though they do fit the Trump administration’s "America first" policy.

Commerce Secretary Wilbur Ross downplayed the remarks but markets paid little heed. Mnuchin spoke in favour of a strong dollar too, noting that, "Longer term, the strength of the dollar is a reflection of the strength of the U.S…,.” but these remarks had little impact as well.

Mnuchin’s comments sent the euro up from around 1.2300 to highs just above 1.2400, while USD/JPY fell from around 110 to 109. GBP was the star outperformer, strong labour market data giving the currency an added boost. GBP rose from around 1.4050 overnight to 1.4240."