Dollar near 16-month high

On Tuesday, the dollar held just below a 16-month high against the euro. At the same time, the yuan rose to its highest level in more than five months as markets welcomed talks between the U.S. and Chinese presidents.

However, support for riskier currencies has waned as the negotiations did not appear to result in any significant breakthrough.

The dollar went down to a five-month low against China’s offshore yuan overnight. It traded at 6.3615 and was still down around 0.1 percent. However, by early European trading, the Australian dollar, viewed as a liquid proxy for risk appetite, had given up its overnight gains, falling 0.1 percent on the day to $0.73425.

The dollar index was a tad lower at 95.446. It rose to its highest level in 16 months after U.S. inflation data last week showed consumer prices rose at the fastest rate since 1990. This fueled speculation that the Federal Reserve may raise interest rates sooner than expected.

According to Lagarde, tightening monetary policy now to control inflation risks suffocates the eurozone’s recovery. Analysts also claimed that an increase in COVID-19 cases in Europe was causing harm to European currencies, including the euro. 

Currencies

USD/CNY fell 0.1 percent to 6.3777, just above the five-month low reached earlier in the session. Following a relatively smooth virtual meeting between U.S. President Joe Biden and his Chinese counterpart Xi Jinping, albeit without any unexpectedly good news.

The British pound was up 0.4 percent against the dollar, trading at $1.3467. Data showed that British employers hired more people in October after the government’s job-protection furlough scheme expired.

Investors are looking forward to releasing retail sales data from the United States later in the session, influencing interest rate expectations. The euro was little changed on the day. It extended recent losses on Monday in response to Christine Lagarde’s dovish comments.

The leaders of the world’s two largest economies agreed that their countries needed to improve communication and cooperation, a positive tone that has left foreign exchange markets anticipating a reduction in trade tariffs shortly.

Furthermore, GBP/USD rose 0.3 percent to 1.3451. It followed the release of stronger-than-expected U.K. employment data, raising the prospect of the Bank of England raising interest rates.