Asian markets had a lot to grapple with Thursday, with a batch of bullish economic data jostling with some mixed messages from the U.S. Federal Reserve sparking a sell-off in the U.S. dollar.

The data collectively were a blow to the so-called Trump trade, which has been in vogue since the election, in short, buying the U.S. dollar, and selling Treasury bonds and emerging market assets in anticipation of higher interest rates and a stronger greenback.

Asia’s service sector made a strong finish to 2016, providing more evidence of the region’s economic recovery.

Purchasing managers index reports from around the region showed expansion in December, with gauges from Japan, China, Hong Kong and Australia all registering improvement.

In China, a gauge of service sector activity from Caixin and IHS Markit rose to the highest level in almost a year-and-a-half. A corresponding PMI measure for Hong Kong moved above the 50 mark separating expansion from contraction for the first time in almost two years, while a survey of service sector activity in Australia from the Australian Industry Group, a trade association, jumped to the highest since May 2007.

The data added to optimism after data released earlier this week indicated manufacturers in Asian economies also showed signs of recovery during December. It looks like the economy has stabilized,? said Zhou Hao, senior emerging market economist for Asia at Commerzbank.

Meanwhile, the U.S. Federal Reserve warned Wednesday that uncertainty about President-elect Donald Trump’s stimulus and policies were clouding its forecasts.

The U.S. dollar weakened after minutes from the U.S. Federal Open Markets Committee said most policymakers agreed that gradual increases in interest rates were appropriate to hit the Fed’s employment and inflation targets, but noted substantial uncertainty around the size and timing of fiscal stimulus expected under the administration of President-elect Donald Trump.

The news collectively added to unraveling of the Trump trade, with traders selling the dollar and buying Asian equities.

The news also reinforced a recent return to U.S. Treasurys, with traders less certain the Fed would be on a path of aggressive rate rises in 2017.

Currency markets saw a choppy start to the Asian trading day, with a rally that has taken the U.S. dollar to a 14-year high, seemingly facing a setback. The U.S. Dollar Index, which tracks the greenback’s strength against a basket of six global currencies, was last down 0.5% at 102.2.

In offshore markets, the Chinese yuan surged to its strongest level in a month during U.S. trading hours, and jumped again in Asian trading hours Thursday.

Overnight borrowing rates for the offshore yuan rose to a one-year high of 38.335%, according to an average of rates submitted to the Hong Kong Treasury Markets Association, pushing traders out of yuan short positions.

The People’s Bank of China set the central reference rate for the Chinese yuan at 6.9307 against the U.S. dollar, the strongest rate against the greenback since December 15.

Regional equity markets drew strength from the data, with almost all Asian indexes up and Hong Kong’s Hang Seng Index rising sharply. The main outlier was Japan’s Nikkei, which fell because yen strengthening hurt the country’s export stocks.

Source: Dow Jones