The US dollar fell on Wednesday after rising in the previous session. Its index fell 0.7% to 104.25 against a basket of six major currencies. In February, the index rose nearly 3%. That was his first monthly profit after enduring a four-month losing streak. Strong US economic data has bolstered market confidence in recent weeks. With the US economy remaining resilient, investors are expecting more rate hikes from the Federal Reserve. Futures prices forecast rates to peak at about 5.4% in September.
Michael Every, Rabobank’s global strategist, noted that the agency could decide to raise 5.5%, but a 6% rise is also possible. Also, other central banks will not be able to match or follow the Fed’s rates. Therefore, the dollar is likely to rise again in the coming months.
In Asia, the Chinese yuan soared today. The new data showed that manufacturing activity in the country expanded at its fastest pace since April 2012. Non-manufacturing activity also increased at a faster pace in February. In addition, the Caixin/S&P Global Manufacturing PMI reading for February beat analysts’ expectations.
On Wednesday, the onshore yuan changed hands at 6.8854 per USD. The Chinese currency reached its highest level since February 21. The offshore yuan was also up 1.3% at 6.8683 to the dollar. The latter looked headed for its biggest one-day gain since late November.
Niels Christensen, chief analyst at Nordea, said the new reports confirmed economists’ expectations that growth prospects have improved significantly in the country. China eased its Covid-19 restrictions several weeks ago. With the reopening coming so late, traders were concerned that the rally would be slow, but so far the opposite has been true. Risk sentiment engulfed the markets today.
How are the euro and sterling doing?
The common currency jumped on Wednesday. Regional German inflation data hinted that price pressures remain high in the country. That means the ECB could continue to raise interest rates.
According to the data, inflation was practically unchanged in five German states in February. However, traders are now awaiting preliminary pan-German inflation data, due later today. It will offer new figures based on reports from 16 German states.
On Tuesday, several different reports showed that inflation is also accelerating in France and Spain. These two are also the largest economies in the euro area. This news only reinforces expectations of further rate hikes from the European Central Bank.
The euro shot up 0.9% against the dollar today, finally trading at $1.0672. It looked headed for its biggest daily gain since Feb. 1. Nordea’s Christensen noted that inflation data boosted the single currency. However, new reports could change investors’ perspectives.
Meanwhile, sterling jumped 0.2% to $1.2049. despite that, sterling lost some of its earlier gains after a statement by Bank of England Governor Andrew Bailey. The latter commented that the BOE could already be at the end of its rate hike cycle.
The British pound gained 1% at the start of this week. The UK announced a post-Brexit Northern Ireland trade deal with the EU, which backs the British currency.
What about the other major currencies?
The Australian and New Zealand dollars rose on strong Chinese data. The Australian dollar rose 0.7% to $0.6774. The currency recouped some of the losses suffered when it hit a two-month low on Wednesday. Weak domestic economic data sent the Australian dollar into the red for a while. On the other hand, the kiwi dollar was up 1.3% at $0.6263.
In Asia, the dollar plunged 0.65% against the Japanese yen. It changed hands at 135.36 yen at last. However, the dollar rose almost 5% against the yen last month.
Emerging Asian stocks and currencies were also in the green today. Thailand’s baht soared 0.7%. He stayed on track for his best session since Jan. 13. At the same time, the Singapore dollar added 0.2%, with the Malaysian ringgit rising 0.1%. Shares in Taipei and Manila soared 0.6% each. On the other hand, shares in Bangkok added 0.1%.
However, on Wednesday, the rupee and shares in Jakarta were flat. In India, the rupee rallied 0.2%. Meanwhile, shares rose 0.7%. The new data showed that economic growth slowed further in the December quarter in the country. But the government remains optimistic.
