The U.S. dollar was subdued on Wednesday. It climbed up from near a five-month low against other major currencies, as investors sentiment turned optimistic due to a bolstering U.S. manufacturing. Analysts think economic recovery may push the Federal Reserve to normalize its policy earlier than expected.
The dollar index traded just below 90 against six rivals after tumbling down to as low as 89.662 on Tuesday. Meanwhile, the euro exchanged hands at $1.22 after lowering from near a multi-month high overnight, when it skyrocketed to $1.22545.
Traders were watching the trajectory of the recently bullish Chinese yuan. It changed insignificantly at 6.3823 per dollar in offshore trading after declining from a three-year high of 6.3526 on Monday as policymakers took steps to temper its advance.
What About the British Pound?
Sterling traded at $1.4135 after plummeting down from a three-year high of $1.4250 reached on Tuesday. On the other hand, the Canadian dollar exchanged hands at C$1.20675 per greenback after hitting a fresh six-year high of C$1.2007 overnight as oil prices soared.
Valentin Marinov, the head of G10 FX research at Credit Agricole, noted that the forex market seems caught between two conflicting drivers. There are vast amounts of dollar liquidity in the global money markets thanks to the Fed’s Q.E. At the same time, theirs is the U.S. Treasury’s unwinding of the cash holdings under its general account to consider.
Marinov added that the times of generous greenback liquidity supply maybe soon drawing to an end. The dollar could benefit from a rebound in the U.S. money market rates and even U.S. Treasury yields.
The Institute for Supply Management (ISM) announced that its index of U.S. manufacturing activity jumped in May as consumer demand amid a reopening economy boosted orders.
Meanwhile, the Turkish lira tumbled down to fresh record lows after President Recep Tayyip Erdogan renewed calls for lower interest rates. Erdogan continues to expound his belief that lower borrowing costs will help slow inflation.
