Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Dollar drops as commodity currencies gain on China optimism; euro rises on hot inflation

Published 02/28/2023, 08:23 PM
Updated 03/01/2023, 04:46 PM
© Reuters. FILE PHOTO: U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration//File Photo

© Reuters. FILE PHOTO: U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration//File Photo

By Gertrude Chavez-Dreyfuss and Herbert Lash

NEW YORK (Reuters) - The U.S. dollar fell across the board on Wednesday, weighed down by firmer commodity currencies that benefited from China's strong manufacturing activity data, as well as gains in the euro after German inflation soared last month and raised rate hike expectations in the euro zone.

Along with the Australian and New Zealand dollars, China's yuan rose after data showed Chinese manufacturing activity expanded at its fastest pace in a decade, smashing expectations. The official manufacturing purchasing managers' index (PMI) shot up to 52.6 last month from 50.1 in January.

China's non-manufacturing activity also grew at a faster pace in February, and the Caixin/S&P Global manufacturing PMI reading for last month surpassed market expectations.

"The market is really responding to some of the other data outside the U.S.," said Amo Sahota, executive director at FX advisory firm Klarity FX in San Francisco.

"Notable today was the outperformance in some commodity currencies. The market is reading into that China PMI data. That was a very strong report and shows China coming back with a vengeance," he added.

(Graphic: China's factory activity at a decade high - https://www.reuters.com/graphics/CHINA-ECONOMY/PMI/mopakqwybpa/chart_eikon.jpg)

Another outperformer was the euro, which climbed 0.8% to $1.066, boosted by the German inflation report. Traders said there is a large option expiry on Friday at $1.07 in the euro, suggesting further room for upside gains in the single European currency.

German consumer prices, harmonized to compare with other European Union countries, rose more than anticipated and pushed up European Central Bank (ECB) rate hike expectations after the data pointed to no let-up in stubborn cost pressures.

"The German inflation reading backs up expectations that the ECB will do something more here and that's helping the euro," said Klarity's Sahota.

Figures released on Tuesday showed accelerating inflation in France and Spain, two of the euro zone's biggest economies.

Against a basket of currencies, the dollar index fell 0.5% to 104.42.

The dollar also added to losses after data showed U.S. manufacturing activity contracted for a fourth straight month in February. The ISM's manufacturing PMI edged up to 47.7 last month from 47.4 in January, the first rise in six months. A PMI reading below 50 indicates contraction in manufacturing.

The dollar index rose nearly 3% in February, its first monthly gain after a four-month losing streak, as a slew of strong U.S. economic data in recent weeks raised market expectations the Federal Reserve has further to go in hiking rates.

Futures pricing continues to edge higher, with a peak rate climbing on Wednesday to 5.46% in the fed funds by September.

Elsewhere, the dollar was flat against the Japanese yen at 136.20 yen, after the U.S. currency rose almost 5% in February, its largest monthly gain since June.

The onshore yuan finished the domestic session at 6.8729 per dollar, the strongest close since Feb. 21, while the offshore yuan jumped 1.1 to 6.8779 per dollar, set for its largest one-day gain since late November.

The New Zealand dollar surged 1% to US$0.6248, while the Aussie dollar rose 0.4% to US$0.6752, reversing the slide to a two-month low earlier on Wednesday following soft domestic economic data.

The two currencies are often used as liquid proxies for the yuan.

Sterling traded little changed on the day at $1.2016, after Bank of England Governor Andrew Bailey said it was possible the central bank had already come to the end of its rate-rising cycle.

========================================================

Currency bid prices at 4:09PM (2109 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 104.4100 104.9800 -0.53% 0.889% +105.0900 +104.0900

Euro/Dollar $1.0665 $1.0576 +0.84% -0.47% +$1.0691 +$1.0567

Dollar/Yen 136.1700 136.2250 -0.03% +3.87% +136.4600 +135.2500

Euro/Yen 145.24 144.06 +0.82% +3.52% +145.2800 +144.0300

Dollar/Swiss 0.9398 0.9421 -0.20% +1.68% +0.9428 +0.9350

Sterling/Dollar $1.2017 $1.2018 -0.02% -0.64% +$1.2088 +$1.1965

Dollar/Canadian 1.3596 1.3649 -0.40% +0.34% +1.3659 +1.3585

Aussie/Dollar $0.6755 $0.6729 +0.38% -0.92% +$0.6783 +$0.6695

Euro/Swiss 1.0022 0.9961 +0.61% +1.28% +1.0026 +0.9959

Euro/Sterling 0.8873 0.8795 +0.89% +0.33% +0.8896 +0.8783

NZ $0.6253 $0.6185 +1.11% -1.52% +$0.6275 +$0.6166

Dollar/Dollar

Dollar/Norway 10.3790 10.3900 +0.17% +6.05% +10.4480 +10.3120

Euro/Norway 11.0672 10.9770 +0.82% +5.47% +11.1278 +10.9344

© Reuters. FILE PHOTO: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016.   REUTERS/Jason Lee/Illustration

Dollar/Sweden 10.4354 10.4629 +0.61% +0.27% +10.4860 +10.3759

Euro/Sweden 11.1258 11.0581 +0.61% -0.17% +11.1650 +11.0503

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.