US dollar dips as risk appetite grows

London

THE US dollar fell against a basket of major currencies on Tuesday after China lifted its official yuan exchange rate to its highest level in 30 months, helping support demand for other currencies.

China's central bank set the official yuan midpoint at 6.4760 per US dollar before the market opened.

In the offshore market, the yuan strengthened as far as 6.4419 for the first time since June 2018. It started the week at 6.4944.

While investor caution about the yuan's rally prompted some later selling of the Chinese currency on Tuesday, the People's Bank of China's action nonetheless lifted risk sentiment in currency markets.

Among G-10 currencies, the Australian dollar led gains as the move by the People's Bank of China encouraged broad US dollar selling.

The dollar index weakened 0.2 per cent to 89.731. It dropped as low as 89.415 on Monday for the first time since April 2018, but ended the day with a 0.1 per cent gain after US stocks slid.

Earlier, the US dollar had found support as concern about surging Covid-19 cases and uncertainty about US runoff elections in Georgia spurred a retreat in US stocks from record highs to start the year and kindled demand for safer assets.

Still, strategists appear convinced of protracted weakness for the US dollar. "While rising Covid-19 cases remain the key near-term risk, as has been the case in the latter part of 2020, the market continues to focus on the prospects of the vaccine and the eventual global economic recovery," ING Bank said in a note to clients.

The Aussie dollar, a barometer of risk appetite that also tends to follow the yuan, jumped 0.7 per cent to 77.18 US cents during trade in London, approaching the 2½-year high of 77.43 touched on the final day of 2020.

The US dollar fell 0.3 per cent to 102.86 yen. It dropped as low as 102.715 on Monday for the first time since March. The euro rose 0.2 per cent to US$1.22765 after reaching US$1.231 on Monday, its highest since April 2018. The British pound gained 0.1 per cent to US$1.3573.

Sterling has been swung by a surge in infections of a fast-spreading new coronavirus strain in the United Kingdom, with UK Prime Minister Boris Johnson ordering another nationwide lockdown.

It slid 0.73 per cent on Monday, the most since Dec 10, after earlier rising to US$1.3703, a level not seen since May 2018. REUTERS