Dollar softens amid bets other central banks to outpace Fed tightening
The dollar languished near the bottom of its recent range against major peers on Tuesday, knocked back by weak U.S. factory data overnight and on market wagers of faster normalization of monetary policy in other countries.
The dollar index, which measures the greenback against six peers, weakened 0.05% to 93.894 from Monday. It has oscillated for the past three weeks between 93.671 and the one-year high of 94.563, reached last Tuesday.
Over the past week though, it has trended lower, with a tapering of Federal Reserve stimulus as early as next month already priced in, along with a first interest-rate increase next year.
A recovery in risk sentiment has also weighed on the safe-haven U.S. currency.
Elsewhere, Bank of England Governor Andrew Bailey sent a fresh signal for early U.K. rate hikes by saying on Sunday that the central bank will “have to act” to counter rising inflation risks. In New Zealand, bets for faster policy normalization were stoked on Monday by data showing the fastest consumer-price inflation in more than a decade.
The U.K. and New Zealand led a rise in short-term bond yields globally, with rates in Europe and Australia climbing comparatively more than those in the U.S., pressuring the dollar.
Sterling added 0.13% to $1.37455, nearing Friday’s one-month peak at $1.3773.
The euro advanced 0.09% to $1.16205, approaching the top of this month’s trading range.
Against the safe-haven yen, the dollar was little changed at 114.275, but not far from the almost three-year high of 114.47 touched on Friday.
EUR/USD jumps to three-week highs near 1.1650 amid falling dollar, yields
The EUR/USD daily chart shows the pair is range-bound within the 1.1560 – 1.1620 area. The Relative Strength Index at 44, trendless, depicts the pair is in consolidation. However, recent price action illustrates that an inverse head-and-shoulders pattern is forming, but a daily close above the neckline around 1.1625 is needed to confirm its validity. In that outcome, a move towards the 1.1700 figure is on the cards.
On the other hand, failure at 1.1625 would resume the downward trend of the EUR/USD pair. The first support would be the September 30 low at 1.1562, immediately followed by the October 12 low at 1.1524
GBP/USD: Upside needs validation above the descending trendline near 1.3780
On the daily chart, the GBP/USD pair has been in the continuous downward trend since the high made on July 30 at 1.3983. The descending trendline from the mentioned level act as a strong barrier for GBP/USD. The spot trades above the 50-day Simple Moving Average (SMA) at 1.3716 makes bulls hopeful of some recovery.
If the pair sustains the intraday high along with the break of the bearish slopping line that would mean GBP/USD bulls can test the psychological 1.3800 mark. A successful break of the 100-day SMA at 1.3812 could pave way for the 1.3850 horizontal resistance level.
The Moving Average Convergence Divergence (MACD) indicator holds onto the oversold zone. Any uptick in the MACD could bring some upside momentum for the spot. The bulls would approach the psychological 1.3900 level in that case.
China's yuan jumps to 4-month high as property concerns ebb
China's yuan leapt to a four-month high against the dollar on Tuesday, aided by market expectations that the stresses in the domestic property sector as well as Sino-U.S. tensions are easing.
The rise in the yuan in onshore and offshore markets
followed weaker-than-expected Chinese economic growth data on Monday, but after China's central bank calmed markets late last week saying spillover effects from the China Evergrande Group's debt woes were controllable.
In the spot market, onshore yuan opened at 6.4250
per dollar and jumped to a high of 6.4105, the strongest level since June 16 and 189 pips firmer than the previous late session close.
Reference: CNBC, Reuters, FXStreeet
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