Greenback edges back from four-month highs

London

THE US dollar edged down from four-month highs on Wednesday as better-than-expected purchasing manager surveys from Britain and Europe offset concerns over a third Covid-19 wave in Europe, potential US tax hikes and rising tensions between the West and China, which sapped risk appetite overnight.

Eurozone business activity unexpectedly grew this month, a preliminary survey showed, but with much of Europe suffering a third wave of coronavirus infections and renewed lockdown measures, that may not last through April.

Factories ramped up output at the fastest monthly pace in over 23 years, countering a continuing slowdown in the services industry, which is more vulnerable to lockdowns and the region's slow vaccine rollout.

IHS Markit's flash composite PMI (purchasing managers' index), seen as a good guide to economic health, climbed above the 50 mark separating growth from contraction, to 52.5 in March compared with February's 48.8, its highest since late 2018.

The PMI saw the dollar index pull back from a four-month high of 92.608 hit in early London trade, trading at the 92.454 mark around midday.

"(Covid-19 third-wave concern) was the real driving force... but ultimately we've seen that negativity pushed back by the context of the flash PMIs we've seen this morning across the eurozone and the UK, which have been much more constructive," said Jeremy Stretch, head of CIBC FX strategy.

The index that measures the dollar's strength against a basket of peer currencies is up nearly 3 per cent year-to-date, confounding widely held expectations among analysts for a decline. The euro hit a four-month low of US$1.1812 after Germany extended a lockdown.

The overnight flight to safety got an additional nudge when US Treasury Secretary Janet Yellen told lawmakers that future tax hikes will be needed to pay for infrastructure projects and other public investments.

Human rights sanctions on China imposed by the US, Europe and Britain, which prompted retaliatory sanctions from Beijing, added to market concerns overnight.

The yen, which gained in Asian trade, weakened 0.1 per cent by the start of trading in London.

Australia's dollar slipped to as low as US$0.7582, a level not seen since Feb 5, before recovering.

The British pound weakened as far as US$1.3675, also the lowest since early February. REUTERS