The U.S. dollar traded near break-even levels on Wednesday, retreating from an early advance though investors continued to watch the political situation in Europe with caution, according to MarketWatch.
The coming election in France is seen as a potential headwind for markets, in the wake of far-right candidate Marine Le Pen launching her presidential campaign over the weekend. Polls indicate an uphill climb for Le Pen to be elected, but she has pushed for France to leave the eurozone. When the United Kingdom voted to do so last year, it took the U.K.’s pound to multidecade lows.
“There’s a growing sense of concern on the political backdrop as people attach a higher and higher probability to the prospect of something unusual happening in the elections we have coming up this year,” said Adam Cole, head of G-10 FX strategy at RBC Capital Markets.
The WSJ Dollar Index BUXX, +0.14% a measure of the dollar against a basket of 16 major currencies, was down 0.2% at 90.62.
Against its Japanese counterpart, the dollar USDJPY, +0.19% slipped to ¥112.05 from ¥112.45 late Tuesday, a move of about 0.4%.
The move came as investors took a wait-and-see stance before Prime Minister Shinzo Abe’s trip to Washington this week to meet with President Donald Trump.
Trump’s comments about the dollar’s strength have raised concerns among investors that he might try to drive it down to help U.S. manufacturers compete with their international counterparts.
According to U.S. Commerce Department data released Tuesday, the U.S. posted a $68.9 billion goods trade deficit with Japan in 2016. The country was the second-biggest contributor to the overall U.S. goods trade deficit, after China.
Nomura Securities chief foreign-exchange strategist Yunosuke Ikeda wrote in a note that investors “should not overreact” to the data. He said Japan’s contribution to the total U.S. deficit was 9.4% last year, down from 10.6% in 2012, when the dollar was mostly below ¥85—undercutting the argument that Japan is enjoying a trade surplus against the U.S. with support from a weaker yen.