US dollar hits January lows as inflation jitters ebb

London

THE US dollar hit 4½-month lows against a basket of peers on Tuesday, as insistence from the US Federal Reserve that policy would stay pat calmed fears about inflation, forcing rates higher, while China's yuan strengthened past 6.4 to the US dollar.

The onshore yuan opened at 6.4110 per US dollar and jumped to a high of 6.4016, the strongest since June 2018 and a tad below the psychologically important 6.4 per US dollar level.

China's major state-owned banks were seen buying US dollars at around 6.4 yuan per US dollar on Tuesday in Asia, sources said, in a move viewed as an effort to curb fast yuan appreciation to breach the key level.

US dollars are heavily shorted by investors in the belief that low US rates will drive cash abroad as the world recovers from the pandemic.

They have become leery of adding to positions after an April leap in inflation cast doubt on the policy outlook, but seemed to find reassurance in data and Fed remarks overnight.

The US dollar index softened as much as 0.3 per cent to 89.533 in Europe, adding to its 0.2 per cent overnight loss to take it to its lowest since Jan 7. The euro crossed last week's four-month peak at US$1.2245 to hit US$1.2262, up 0.3 per cent on the day.

The US national activity index reading of 0.24 against expectations above one, as well as dovish comments from Fed speakers, provided some backing for the view that any policy tightening is not happening any time soon.

The yield on benchmark 10-year Treasuries hovered at 1.5910 per cent, just above a two-week low, and the US dollar also eased on the Australian and New Zealand dollars and the yen.

The yen was last 0.2 per cent lower at 108.92 per dollar while the Aussie and kiwi drifted in the middle of ranges that have held them since April. The Aussie bought US$0.7758 and the kiwi US$0.7219.

Sterling, which has run up about 1.2 per cent over the past three weeks while other majors have steadied or even slipped, traded flat at US$1.4155. The Turkish lira eased 0.2 per cent to 8.4070 per dollar.

Cryptocurrencies fell in Europe after making their best attempt at a bounce on Monday from last week's lows.

Bitcoin fell 3.6 per cent to US$37,440. Ether fell 6.5 per cent to US$2,479, following a 26 per cent rebound on Monday. REUTERS