THE US dollar fell to a nine-day low on Thursday, as robust US data and hopes for US fiscal stimulus left investors confident enough to seek out riskier currencies.
The Chinese yuan gained the most against the US dollar, reaching a year-and-a-half high in the offshore market, as a holiday in China dried up liquidity, exaggerating the moves. In addition, Chinese data on Wednesday showed its economic recovery was on track.
The Australian dollar also rose versus the US dollar.
"There's been certainly a dent in liquidity," said Jeremy Stretch, head of G10 FX strategy at CIBS.
"But what we have seen so far is a generalised risk-on bias on optimism of a stimulus package in the US."
US President Donald Trump's administration has proposed a coronavirus stimulus package to House Democrats worth more than US$1.5 trillion, and hopes are rising that both parties will reach a compromise.
Short-term traders had expected the US dollar to rise. When it did not, they were squeezed out of those positions, "resulting in some sizeable moves weaker for the (US) dollar versus certain G10 and EM currencies", said Derek Halpenny, head of research at MUFG.
Latest BNP Paribas research showed market participants have added a few short positions on the US dollar compared with last week.
Along with strong US labour and manufacturing data, the mood pulled the US dollar down 0.3 per cent to 93.56 against a basket of currencies, its weakest since Sept 22.
The euro zone manufacturing recovery gathered pace last month, the final reading of the manufacturing PMI showed, which came in at 53.7. But official data showed unemployment across the region rose to 8.1 per cent in August, as expected.
The euro was last trading at US$1.1765, up 0.4 per cent on the day and its highest since Sept 22.
The Australian dollar rose 0.5 per cent at US$0.7204, its highest since Sept 22. The Chinese yuan rose 0.7 per cent to 6.7330, its highest since the beginning of May 2019.
The British pound rose 0.3 per cent against the US dollar at US$1.2957, reversing earlier losses, after a Financial Times report said Britain and the European Union may have reached an agreement on state aid after Brexit.
Sterling also rose 0.1 per cent against the euro to trade at 90.78 pence. REUTERS