The dollar edged up against the yen and euro on Friday, pulling away from recent lows, but gains were capped as investors focused on a showdown between U.S. President Donald Trump and members of his own party over a new healthcare bill.
Trump warned House Republican lawmakers that he will leave Obamacare in place and move on to tax reform if they do not get behind new healthcare legislation and support it in a vote on Friday.
Postponement of the vote from Thursday initially knocked the dollar and stock markets, but the dollar was given breathing space as Treasury yields turned higher after Wall Street shares trimmed losses to close little changed.
Equities in Asia took heart and firmed on Friday, with Japan’s Nikkei rising 1 percent.
“The dollar had been sold on the assumption that the healthcare bill would not pass, but some of those positions look to have been unwound. The market focus appears to have shifted to how Trump can pass the bill, from if he can push the bill through,” said Bart Wakabayashi, branch manager for State Street Bank and Trust in Tokyo.
“U.S. yields are higher and it’s not hard for dollar/yen to attract bids. It is often overlooked but the dollar continues to enjoy underlying support from widening U.S.-Japanese interest rate spreads.”
The dollar was up 0.35 percent at 111.340 yen, pulling back from a four-month low of 110.620 struck overnight.
The U.S. currency was still on track for a 1.2 percent loss against its the yen this week, during which the safe-haven yen benefited from equity market volatility.
The yen has also gained from a scandal involving a land deal that has chipped away support for Prime Minister Shinzo Abe.
While that may appear counterintuitive, the yen has been a safe-haven of choice even when risk events originate domestically.
The currency rallied when a devastating earthquake struck Japan in March 2011 and triggered a nuclear disaster, prompting an intervention by Tokyo to arrest its surge.
Reuters
