By Saikat Chatterjee and Hideyuki Sano
LONDON/TOKYO (Reuters) – The Australian dollar fell to a weekly low on Tuesday after the central bank opened the door to another cut in interest rates as early as February and other currencies also weakened due to a fading in trade-related euphoria.
In Britain, the pound tanked as Prime Minister Boris Johnson, embolden by election victory, put the risk of a hard Brexit back on the table, saying he would make extending the transition period beyond 2020 illegal.
The Australian dollar lost 0.5% to $0.6844
Last week saw the apparent removal of the two main risks dominating global markets: a preliminary trade deal was reached between the U.S. and China, and the UK Prime Minister won a majority in the election, promising to end uncertainty around the UK’s departure from the European Union.
But by Tuesday, optimism was starting to subside, with the safe-haven Japanese yen up 0.1%
The deal, announced on Friday after more than two-and-a-half years of volatile negotiations between Washington and Beijing, will reduce U.S. tariffs on Chinese goods in exchange for increased Chinese purchases of some U.S. goods.
Fitch ratings agency said that the “phase one” deal eased U.S.-China tensions but that renewed escalation remains a significant risk, with the issue of technology posing an obstacle to full resolution.
“The Aussie is weaker on the back of the back of the more dovish than expected RBA minutes,” said Valentin Marinov, head of G10 FX strategy at Credit Agricole.
“That said, market expectations of a Phase 1 US-China trade deal could limit the currency’s downside in the near term.”
The drop in the Australian dollar and the pound boosted the greenback, with the U.S. currency trading 0.1% stronger against a basket of its rivals <.DXY>.
Against the dollar, the British currency
The trade-exposed Scandinavian currencies also took a hit, with the euro up 0.2% against the Swedish crown
The euro was up 1.2% against the Brexit-startled pound
(Reporting by Saikat Chatterjee and Elizabeth Howcroft in London and Hideyuki Sano in Tokyo, editing by Ed Osmond and Philippa Fletcher)