The dollar fell against major peers on Tuesday as China set the official yuan exchange rate at the strongest since abandoning its peg in 2005, which helped support demand for other units. The Australian dollar led gains in major currencies as the move by the People’s Bank of China (PBOC) encouraged broad dollar selling. Earlier, the greenback had found support as concerns about surging COVID-19 cases and uncertainty about U.S. runoff elections in Georgia spurred a retreat in U.S. stocks from record highs to start the year and kindled demand for safer assets.
While investor caution about the yuan’s heady rally prompted some later selling in the Chinese currency on Tuesday, the PBOC’s action nonetheless lifted risk sentiment in currency markets. The PBOC set the official yuan midpoint at 6.4760 per dollar prior to the market open, 1% firmer than the previous fix, also the biggest change since 2005. In the offshore market, the yuan strengthened as far as 6.4419 for the first time since June 2018. It started the week at 6.4944.
The Aussie dollar, a barometer of risk appetite that also tends to follow the yuan, jumped 0.5% to 77.022 U.S. cents in the Asian session, approaching the 2-1/2-year high of 77.43 touched on the final day of 2020. The dollar index weakened 0.2% to 89.731. It dropped as low as 89.415 on Monday for the first time since April 2018, but ended the day with a 0.1% gain after U.S. stocks slid.
The dollar fell 0.1% to 103.010 yen. It dropped as low as 102.715 on Monday for the first time since March. The euro rose 0.1% to $1.22690 after reaching $1.231 on Monday, a level not seen since April 2018. The British pound gained 0.1% to $1.3583. Sterling has been swung by a surge in infections of a fast-spreading new coronavirus strain in the UK, with Prime Minister Boris Johnson ordering a nationwide lockdown. It slid 0.73% on Monday, the most since Dec. 10, after earlier rising to $1.3703, a level not seen since May 2018.