Dollar near weakest levels since early January

by Jonathan Adams

The dollar index languished at 89.665 in Asia, after reaching 89.533 on Tuesday

The dollar wallowed near its weakest since early January against major peers on Wednesday, as Treasury yields eased amid Federal Reserve insistence that stimulus will continue despite current inflationary pressures

The euro traded around the key $1.2250 level, holding gains from Tuesday when it hit $1.2266 for the first time since Jan. 8, as Europe’s pandemic recovery picks up pace, closing the gap with the U.S.

The dollar index, which gauges the greenback against six rivals, languished at 89.665 early in Asia, after reaching 89.533 on Tuesday.

New Zealand’s currency gained after the central bank said it would maintain stimulatory monetary policy settings until its inflation and employment targets are achieved. The kiwi dollar last traded 0.6% higher at $0.72692.

Meanwhile, traders will be watching the Chinese yuan after it rose to an almost three-year high of 6.3925 per dollar on Tuesday in the offshore market, before last changing hands at 6.4012.

A host of Fed officials overnight echoed the sentiments of Chair Jerome Powell that a spike in inflation will be transient and ultra-easy policy continues to be warranted.

I have not seen anything yet to persuade me to change my full support of our accommodative stance, Chicago Fed President Charles Evans said in a speech on Tuesday.

The dollar has dropped over the past two months on the belief that low U.S. rates will drive cash abroad to capture gains now that other economies are beginning to recover more quickly from the pandemic.

Confidence in the outlook for the recovery in the Eurozone has been increasing, Rabobank strategist Jane Foley wrote in a report.

The conviction of Fed officials that this year’s price pressure will be transient suggests there is no real reason to suspect any significant rowing back of monetary policy accommodations in the near-term, she said.

The yield on benchmark 10-year Treasury notes hovered at 1.5723%, near the 1.5540% mark reached overnight for the first time since May 7′s payrolls data.

The yen, which is also sensitive to declines in yields, hovered around the middle of its approximately 108.4-109.7 per dollar trading range this month, last changing hands at 108.74.

The Chinese yuan strengthened to 6.3925 per dollar on Tuesday in offshore trading, piercing the psychological 6.40 boundary for the first time since mid-2018.

China’s major state-owned banks were seen buying U.S. dollars at around 6.40 yuan in the Asian afternoon in a move viewed as an effort to cool the rally in the onshore yuan, sources said.

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