The dollar has retreated from its recent 10-week highs as global risk appetite rebounds following a jump in US government bond yields and a weakening Chinese economy.
Rising US Treasury yields, which reached 16-year highs on Tuesday, and concerns about China have contributed to the recent strength of the dollar.
“What we’re seeing now is a small pause,” commented Fiona Cincotta, a senior markets analyst in London. “We’ve witnessed a strong rally in the dollar, and today there is a cautiously optimistic mood.”
The US dollar index, which measures the currency against six developed-market counterparts, is currently down 0.25% at 103.06, below last Friday’s 10-week high of 103.68. However, the index has gained just over 1% so far this month.
The dollar has slipped 0.3% against the yen to 145.79, moving away from the nine-month highs it hit last month after the Bank of Japan Governor confirmed that exchange-rate volatility was not discussed during a recent meeting with the prime minister.
Overall, the dollar is expected to make limited moves ahead of a speech by Federal Reserve Chair Jerome Powell at the central bank’s symposium in Jackson Hole, Wyoming.
“The dollar outlook largely depends on what Powell says about whether rates will remain higher for longer,” added Cincotta.
The euro has strengthened by a third of a percent to $1.0928, while sterling has also risen by roughly 0.3% to $1.2798.
The Chinese yuan briefly reached a one-week high against the dollar as Beijing’s efforts to slow its decline started to have an effect. However, the currency remains under pressure due to rapidly rising US yields and concerns about the weakening Chinese economy.
The Chinese central bank has set the yuan mid-point at 7.1992 per dollar, 1105 pips firmer than estimated by Reuters, as it attempts to stabilize the currency following its recent slide to a 9-1/2-month low of 7.349 in offshore trading.
While the offshore yuan has softened slightly to around 7.30 per dollar, it firmed by as much as 0.25% after the fixing.
The Australian dollar has gained 0.4% to $0.6441 as global risk appetite recovers. The currency had previously dropped to a 9-1/2-month low of $0.6365 last Thursday.
“To reverse the downward trend in the AUD/USD, it will likely take a significant Chinese stimulus package focused on commodity-intensive infrastructure spending,” said Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia.
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