US Stocks Slump Ahead of Trump Inauguration; Financials Down 2.3%

Yuan climbs to 2017 high as US dollar softens after Trump says the currency is 'too strong'

The same day, the dollar index, which measures the currency against a basket of six major peers, fell approximately 0.7 percent, reaching 100.26, its lowest level since December 8.

Woo expects the currency to climb this year, yet predicts dollar trading will become increasingly volatile after Trump's inauguration Friday, making bullish wagers less appealing.

Further, it's unclear any such policy would be effective in a market as massive as the one that exists for the U.S. dollar internationally.

The index's drop follows two comments from President-elect Donald Trump in an interview with the Wall Street Journal. "He's trying to talk the dollar down while his policies are going in another direction".

Trump said that the border-adjustment plan, which would tax imports and exempt exports, is "too complicated".

What's the benefit of a strong dollar?

We expect the USA dollar to grind higher this year, but at a slower pace and with bumps along the way.

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The downside bias was amplified by comments from Mr. Trump that the dollar was already "too strong" in part because China holds down the value its currency. In the short term, the prospect of a trade war may unsettle markets and lead to flight to the safest asset in the world - dollar-denominated Treasury bonds, bidding them up.

The proposed policy, popular with House Republicans, would allow American exporters to deduct their costs of production from their taxable income, allowing them to lower the cost of exported goods.

Furthermore, economists emphasized that the value of the dollar is not in itself a policy goal - but rather, the inevitable outcome of other factors, including the strength of the USA economy and global investment patterns.

This really is the million dollar question for traders looking at USA stock indices, gold and the U.S. dollar.

The strong dollar also keeps the Treasury Department's borrowing costs low, meaning that when the USA borrows more money or rolls over existing debt, less federal spending is dedicated to interest payments than would be under a weak dollar scenario. He could also direct the Treasury to intervene in foreign currency markets, selling USA dollars and buying foreign currency in an effort to bid the price of the dollar down. However, the United States is party to worldwide agreements against unilateral currency manipulation.

On Tuesday, the pound bounced back 0.78 per cent to buy US$1.2138 at 6:30pm, after the currency fell to a 32-year low on Monday at US$1.2043, down 1.09 per cent on the day.

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