Dollar slides as U.S. job data dents Fed tightening outlook; yuan on back foot

The dollar slid almost half a percent against the euro and the yen on Monday after soft U.S. payrolls data fuelled speculation that the Federal Reserve may stop raising interest rates after a highly likely move next week.

The Chinese yuan dipped after weak trade and inflation data over the weekend, while the British pound hit an 11-week low against the euro as Prime Minister Theresa May’s deal to exit the European Union looks set to be rejected by parliament on Tuesday.

“We have rising tensions between the United States and China over Huawei and the Brexit vote in the UK parliament. The risk-off mood is likely to prevail for now,” said Kyosuke Suzuki, director of forex at Societe Generale.

The dollar fell 0.4 percent against the yen to 112.30, edging near Thursday’s 5 1/2-week low of 112.23.

U.S. non-farm payrolls increased by 155,000 jobs last month, below economists’ median forecast of 200,000 jobs and the wage increase was softer than expected even though its annual rise remained near the highest level in almost a decade.

Some Fed policymakers have struck a cautious tone about the economic outlook, possibly flagging a turning point in its monetary policy.

Federal Reserve Governor Lael Brainard said on Friday the economic picture was broadly positive but that risks were growing overseas and in the corporate debt markets at home.

St. Louis Federal Reserve Bank President James Bullard repeated his call for the Fed to pause its current cycle of interest rate increases.

“The Fed will surely raise rates this month but people were thinking that it could indicate that it won’t be in a hurry to hike them further. Such wariness have grown further after the data,” said Akinori Fukushima, chief manager of forex at Mitsubishi Trust and Banking.

Investors are growingly worried that rising tensions with China could took a toll on the U.S. economy.

Although U.S. President Donald Trump and Chinese President Xi Jinping struck a 90-day truce on tariffs earlier this month, U.S. Trade Representative Robert Lighthizer said on Sunday there is a “hard deadline”, noting U.S.-China trade negotiations need to reach a successful end by March 1.

New tensions between the two countries flared last week after Meng Wanzhou, chief financial officer of China’s tech giant Huawei Technologies was arrested in Vancouver at the request of the United States.

As the dollar wilted, the euro edged up 0.5 percent to $1.1435, even as “yellow vest” anti-government protesters wreaked havoc in Paris during the weekend.

French President Emmanuel Macron will address the country at 2000 Paris time (1900 GMT) on Monday as he seeks to placate the protesters.

In London, Theresa May faces an internal revolt against her Brexit deal ahead of the crucial vote in the parliament on Tuesday. Despite the bleak outlook, May plans to push ahead with the vote while senior lawmakers in her own party piled pressure on her to go back to Brussels and seek a better offer.

A rejection could throw plans for Britain’s exit into turmoil and leave her own political future hanging in the balance.

Against the dollar, the British pound edged up 0.2 percent to $1.2746. Against the euro, it changed hands at 89.70 pence per euro, near its weakest level since late September.

“I’d say a rejection is almost priced in and the focus is on by how much margin she would lose. The chance of May’s government getting toppled increases if there is a large revolt,” said Mitsubishi Trust’s Fukushima.

The Chinese yuan was on the defensive to after weak data pointed to a further cooling in the world’s second-biggest economy.

China’s November exports rose just 5.4 percent from a year earlier, the weakest performance since a contraction in March and well short of the 10 percent forecast in a Reuters poll, adding to evidence that demand is weakening globally.

Import growth was 3 percent, the slowest since October 2016, and a fraction of the 14.5 percent seen in the poll.

The downbeat trade data reinforced views that Chinese authorities will have to roll out more support and stimulus measures soon to stabilise the economy, even if a trade deal with Washington is reached.

The yuan last stood flat at 6.8895 to the dollar, having dipped 0.2 percent earlier in the day.

(The story was refiled to add name to quote in the third paragraph)

Editing by Kim Coghill and Subhranshu Sahu