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Dollar slips, yuan steadies after central bank moves to limit gains

06/01/2021 | 03:45am EDT

* Dollar slips, near five-month lows

* Yuan steadies after PBOC raises reserve requirement

* Euro zone inflation data in focus

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

LONDON, (Reuters) - The dollar hovered near five-month lows on Tuesday as investors waited for euro zone inflation data and a U.S. manufacturing survey, while the yuan steadied after China's central bank took steps to limit its appreciation.

The dollar index was back below 90 in early European trading , having hit as high as 90.447 on Friday, when a measure of U.S. inflation closely watched by the Fed posted its biggest annual rise since 1992. The gauge sank 0.3% on Monday in a market thinned by U.S. and British holidays.

Fed officials, led by Chair Jerome Powell, have said repeatedly they expect price pressures to be transitory and monetary stimulus to stay in place for some time, but investors are wary that a strong pandemic recovery could force the Fed's hand.

Australia's central bank left its cash rate at record lows and reiterated its lower-for-longer policy stance, even as data showed the country's output was above its pre-pandemic level.

But the Australian dollar was still up around 0.5% versus the U.S. dollar at 0739 GMT, at 0.77625.

The New Zealand dollar was up 0.1% at 0.72845. The Reserve Bank of New Zealand surprised markets last week by hinting at a future interest rate hike.

China's yuan was steady after authorities ordered banks to increase their foreign exchange holdings, a move seen as an attempt to limit the fast yuan appreciation.

The offshore yuan was at 6.3726, flat on the day, having crossed the key psychological 6.40 level last week and touched a new three-year high of 6.3524 on Monday.

Analysts said that although the central bank's move - which is expected to withdraw just $20 billion worth of liquidity from the system - would slow the pace of the yuan's strengthening versus the dollar, it was unlikely to stop it completely.

"Fundamental pressures that have encouraged a stronger renminbi over the past year remain in place," wrote MUFG currency analyst Lee Hardman in a note to clients.

"The measures will not prevent global investors from easily obtaining cheap foreign exchange overseas and being able to continue investing in higher yielding renminbi bonds."

"The loose policy approach of other major central banks including the Fed is expected to keep upward pressure on the renminbi," he added.

Britain's pound hit a three-year high of $1.425 during the Asian session, helped by remarks from a Bank of England policymaker last week pointing to a rate hike next year or sooner.

At 0740 GMT, it was up 0.1% on the day at $1.42315.

The Canadian dollar was close to a six-year high, up 0.3%, having strengthened for four months in a row as the outlook for the domestic economy improved.

As currency traders weigh up the prospects for central bank tightening, focus in the near-term is on euro zone HICP inflation data for May, due at 0900 GMT.

The U.S. ISM manufacturing survey due at 1400 GMT will also be closely watched.

The U.S. jobs report for May is due on Friday.

"We don’t expect data this week to materially change market expectations about the Fed’s policy stance, and the dollar’s momentum may stay soft on the back of a still negative real rate narrative," wrote ING FX strategists in a note to clients.

(Reporting by Elizabeth Howcroft; additional reporting by Kevin Buckland; Editing by Angus MacSwan )

ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / CANADIAN DOLLAR (AUD/CAD) 0.25% 0.92245 Delayed Quote.-6.44%
AUSTRALIAN DOLLAR / CHINESE YUAN RENMINBI (AUD/CNY) 0.04% 4.761298 Delayed Quote.-5.51%
AUSTRALIAN DOLLAR / JAPANESE YEN (AUD/JPY) 0.03% 80.447 Delayed Quote.1.44%
AUSTRALIAN DOLLAR / NEW ZEALAND DOLLAR (AUD/NZD) -0.03% 1.05328 Delayed Quote.-1.67%
AUSTRALIAN DOLLAR / SWISS FRANC (AUD/CHF) 0.11% 0.66706 Delayed Quote.-2.32%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.10% 0.7367 Delayed Quote.-4.58%
BRITISH POUND / AUSTRALIAN DOLLAR (GBP/AUD) -0.08% 1.88551 Delayed Quote.6.60%
BRITISH POUND / CANADIAN DOLLAR (GBP/CAD) 0.16% 1.73938 Delayed Quote.-0.33%
BRITISH POUND / CHINESE YUAN RENMINBI (GBP/CNY) 0.12% 8.983735 Delayed Quote.0.64%
BRITISH POUND / NEW ZEALAND DOLLAR (GBP/NZD) -0.10% 1.98608 Delayed Quote.4.79%
BRITISH POUND / US DOLLAR (GBP/USD) 0.04% 1.38962 Delayed Quote.1.62%
CANADIAN DOLLAR / AUSTRALIAN DOLLAR (CAD/AUD) -0.24% 1.084246 Delayed Quote.6.87%
CANADIAN DOLLAR / CHINESE YUAN RENMINBI (CAD/CNY) -0.09% 5.1646 Delayed Quote.1.11%
CANADIAN DOLLAR / JAPANESE YEN (CAD/JPY) -0.22% 87.205 Delayed Quote.8.49%
CANADIAN DOLLAR / SWISS FRANC (CAD/CHF) -0.14% 0.72313 Delayed Quote.4.61%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.12% 0.79875 Delayed Quote.2.14%
DOW JONES FXCM DOLLAR INDEX -0.01% 11888.84 Delayed Quote.1.97%
EURO / AUSTRALIAN DOLLAR (EUR/AUD) -0.10% 1.61143 Delayed Quote.1.86%
EURO / CANADIAN DOLLAR (EUR/CAD) 0.14% 1.48655 Delayed Quote.-4.78%
EURO / CHINESE YUAN RENMINBI (EUR/CNY) 0.10% 7.6777 Delayed Quote.-3.82%
EURO / NEW ZEALAND DOLLAR (EUR/NZD) -0.13% 1.69743 Delayed Quote.0.11%
EURO / US DOLLAR (EUR/USD) 0.02% 1.18764 Delayed Quote.-2.85%
INDIAN RUPEE / AUSTRALIAN DOLLAR (INR/AUD) 0.02% 0.018265 Delayed Quote.2.96%
INDIAN RUPEE / CHINESE YUAN RENMINBI (INR/CNY) 0.08% 0.086955 Delayed Quote.-2.72%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.02% 0.013452 Delayed Quote.-1.75%
NEW ZEALAND DOLLAR / CANADIAN DOLLAR (NZD/CAD) 0.27% 0.87559 Delayed Quote.-4.81%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.15% 0.69962 Delayed Quote.-2.87%
US DOLLAR / AUSTRALIAN DOLLAR (USD/AUD) -0.12% 1.357036 Delayed Quote.4.80%
US DOLLAR / CANADIAN DOLLAR (USD/CAD) 0.13% 1.25165 Delayed Quote.-2.04%
US DOLLAR / CHINESE YUAN RENMINBI (USD/CNY) 0.05% 6.4651 Delayed Quote.-0.98%
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