The dollar traded near five-month lows on Tuesday. Investors are waiting for eurozone inflation data, along with a U.S. manufacturing survey, and they are avoiding large moves meantime. The Chinese yuan firmed after China’s central bank acted to limit its appreciation.
The dollar index tumbled down below 90 in early European trading on Tuesday after hitting as high as 90.447 on Friday. After a measure of U.S. inflation posted its biggest annual jump since 1992, the currency rallied. However, the gauge declined by 0.3% on Monday.
Fed officials expect price pressures to be a transitory and monetary stimulus to remain in place for some time. However, traders are concerned that a strong coronavirus pandemic recovery could force the Fed’s hand.
On Tuesday, the British pound skyrocketed to a three-year high of $1.425 during the Asian session. Bank of England policymaker pointed to a rate hike next year or sooner, boosting the currency. The Sterling climbed up by 0.1% at $1.42315.
The Canadian dollar also traded close to a six-year high, jumping by 0.3%. It has been strengthening for four months in a row thanks to improving outlook for the domestic economy.
Investors currently weigh up the prospects for central bank tightening. They also focus on eurozone HICP inflation data for May, which is due at 0900 GMT.
What About the Asian Currencies?
Australia’s central bank reiterated its lower-for-longer policy stance and left its cash rate at record lows, even though new data showed the country’s output was above its pre-pandemic level.
On Tuesday, the Australian dollar soared by approximately 0.5% at 0.77625 against the U.S. dollar. The New Zealand dollar also climbed up by 0.1% at 0.72845. Last week, the Reserve Bank of New Zealand hinted at a future interest rate hike, surprising markets.
The Chinese yuan remained steady after the government ordered banks to increase their foreign exchange holdings. Some analysts think this is an attempt to limit the fast yuan appreciation. The offshore yuan traded at 6.3726 after touching a new three-year high of 6.3524 on Monday.