The US dollar is consolidating the gains scored late in the US session yesterday in response to a Financial Times interview with US Treasury Secretary Mnuchin who seemed to play down the strategic importance of Trump’s recent complaint about the greenback’s strength.  

Mnuchin spun Trump’s comments to be consistent with his own earlier comments that a strong dollar was in the US interest though in the short-term it presented challenges. It was not, Mnuchin argued, the beginning of “currency war.” The foreign exchange market seemed to accept Mnuchin’s explanation at face value, but his distinction between talk and action will unlikely impress his G7 and G20 counterparts. Recall that the efforts to talk down the yen in Abe’s campaign in late 2012. He was criticized, and after his electoral victory, the G7 signed a new agreement not to weaponize the foreign exchange market.  

The dollar had bottomed earlier yesterday ahead of JPY108 and by the end of the session was near JPY109. Japanese operators helped lifted the dollar to JPY109.20 before the consolidation, and the easing of US yields. Initial support was seen near the 200-day moving average that had been violated on a closing basis in thin activity on Good Friday (~JPY108.85) and then JPY108.60.  

The euro approached last week’s high in the US session yesterday, reaching $1.0670 before Mnuchin’s comments were posted and had been consolidating in a narrow range (~$1.0635 to $1.0660) since then. The first round of the French election this weekend continues to deter activity. In the debt market, the French premium over Germany has edged a touch lower on 10-year rates and is steady to slightly wider on 2-year month.  

Sterling, which had appeared to be a beneficiary of the political uncertainty from the eurozone, tested last month’s high just above $1.26 before reversing lower ahead of Prime Minister’s May slated for later this morning. There is speculation that she could call for a snap election, which given the new electoral law that fixes the election, would require some parliamentary maneuvering. The fact that the statement will be outside 10 Downing Street has fanned such speculation of an important announcement. The UK 10-year yield slipped below 1.0% for the first time in six months.