Dollar falls to early January lows; yuan rally gets noticed

NEW YORK/LONDON: The dollar hit 4-1/2 month lows against major peers on Tuesday, as markets seemed to accept US Federal Reserve arguments that monetary policy should stay easy because inflationary forces are broadly weak, while China state-owned banks were seen trying to curb a yuan rally.

The onshore yuan appreciated to 6.4016 per dollar, the strongest since 2018, after opening at 6.4110. China's major state-owned banks, four sources said, were seen buying US dollars at around 6.4 yuan in the Asian afternoon in a move viewed as an effort to cool a yuan rally led by its offshore counterpart.

The weakness of the dollar came as US market interest rates slipped again and yield on benchmark 10-year Treasuries hit fresh two-week lows and was at 1.579% in mid-morning in New York.

Interest rates in many other developed countries have climbed in the past month and made their currencies more competitive against the dollar, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

The outlook at the moment is for that difference to continue, he added. "The Federal Reserve seems to be behind several other central banks in adjusting and recalibrating monetary policy," Chandler said.

Since the end of March the dollar has been losing value on the belief that low US rates will drive cash abroad as investors move to capture gains from elsewhere around the world as economies recover from the pandemic.

The dollar index against major currencies was off 0.2% in the morning in New York after having fallen as much as 0.3% to 89.533, its lowest since Jan. 7.

The euro climbed to early January levels and was last up 0.3% on the day to $1.2249.

Strategists have said the dollar is likely be weak until markets see stronger US economic data and interest rates. Stronger data could come on Friday with new readings on US core consumer prices in April and a survey of purchasing managers.

Comments from Federal Reserve officials are keeping down US yields, said Jeremy Stretch, head of G10 FX strategy at CIBC. "That's maintaining the weaker dollar narrative," he said.

Dovish comments from Fed speakers have provided backing for the view that any policy tightening is not happening soon.

Sterling, which had run up about 1.2% over the past three weeks while other majors have steadied or even slipped, was stalled at $1.4136 as though it could not break above $1.42.

Cryptocurrencies Bitcoin and Ether was off about 3% for the day in the morning in New York.