FX Focus: Dollar tumbles to seven-month low ahead of Comey's testimony

The dollar plunged to its lowest level since Donald Trump became US President, with investors across the Atlantic growing increasingly worried by lacklustre economic data.

The dollar index, which measures the greenback's strength against a basket of foreign currencies, fell to its lowest level since November in early trading. Halfway through the session, the greenback had recouped some of its losses and was trading flat against most of its rivals, but fell 0.91% against the yen, fetching ¥109.45.

Data released on Monday (5 June), showed the US services sector grew less than expected last month. That came after a separate report published last week showed that the US economy added considerably less jobs than expected.

"The greenback was attacked by bearish investors on repeated occasions last week as the ongoing political turmoil in Washington weighed heavily on the currency," said FXTM research analyst Lukman Otunuga.

"Sellers were swift to exploit May's soft US jobs report to initiate renewed rounds of selling during Monday's trading session with prices descending towards $96.50."

US investors are also focusing on former FBI Director James Comey's testimony before Congress on Thursday, which could trigger some significant political turmoil.

"Comey's testimony will come under heavy scrutiny with markets paying extra attention to see if anything new is brought to the table," Otunuga added.

"Any new revelations or fresh information on whether President Trump wanted him to stop probing his connections to Russia could leave the dollar vulnerable to heavy losses."

In the UK, the pound was on the back foot as political jitters continued to take centre stage ahead of Thursday's General Election, with poll results varying from a narrowing lead for Conservatives over the Labour party to a "hung parliament" scenario.

Sterling was 0.20% and 0.15% lower against the dollar and the euro respectively, trading at $1.2881 and €1.1448 and reversing earlier gains that had seen it climb 0.3% against the former.

"As the polling gap between the Conservatives and Labour seems to narrow further with only days before the vote, investors will be hoping the dollar's weakness will help to support the pound through the uncertainty of the election campaign's final days," said Paresh Davdra of Rational FX.

Elsewhere, the South African rand was the day's worst performing currency, as it slumped by over 1% after the country entered a recession for the second time in eight years. The country, which has been beset by political infighting, saw its GDP decline 0.7% quarter-on-quarter in the first three months of the year, a reading that was much worse than analysts expected.

John Ashbourne, Africa economist at Capital Economics, said: "While we think that things will get better later in the year, risks to our above-consensus growth view for 2017 are now clearly to the downside.

"It is impossible to blame today's surprisingly bad result on poor weather or variations in output from volatile sectors. Instead, the slowdown in the first quarter was due to much worse results from usually stable consumer-facing sectors that had been the key drivers of growth in recent years."