Dollar drops, but trades near two-month high

by Jonathan Adams
Dollar drops

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.01% to 89.987

The dollar inched down, but traded near a two-month high against the yen, on Monday morning in Asia. Investors digested mixed economic data from China and strong inflation data from the U.S., while also expecting the U.S. Federal Reserve to start tapering its asset purchases eventually.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.01% to 89.987 by 5:15 AM GMT.

The USD/CNY pair inched down 0.10% to 6.3612. The offshore yuan declined after Sheng Songcheng, former director of People’s Bank of China statistics department, said on Sunday the rise of yuan will not persist.

The central bank separately added that the currency may depreciate in the future on the same day.

The USD/JPY pair edged down 0.14% to 109.66. Japanese data released earlier in the day said the Industrial Production for April increased by 2.5% month-on-month.

The AUD/USD pair edged up 0.19% to 0.7728, with the Reserve Bank of Australia (RBA) due to hand down its policy decision on Tuesday. The NZD/USD pair edged up 0.18% to 0.7260.

The GBP/USD pair inched up 0.06% to 1.4196.

Both the U.S. and the U.K. markets are closed amid holidays on Monday.

Data released earlier in the day said that China’s Manufacturing Purchasing Managers Index (PMI) was 51.0 and the non-manufacturing PMI was 55 in May, both remaining above the 50-mark indicating growth.

In the U.S., data released on Friday said the Core Personal Consumption Expenditure Price Index increased 3.1% year-on-year (YOY) in April.

The index was also above the Fed’s 2% target and posted its largest annual gain since 1992 due to the country’s recovery from COVID-19 and various supply disruptions.

If we see inflation consistently hitting above 2%, that could put upward pressure on wages. There’s risk inflation trending higher than expected, said Masafumi Yamamoto, chief currency strategist at Mizuho Securities, told Reuters.

However, investors widely expect that the Fed will keep its current dovish monetary policy for a few more months, possibly until the end of 2021.

The 10-year benchmark U.S. Treasuries yield dropped to 1.581%, a second month of declines following a surge earlier in 2021 due to inflation concerns.



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