The U.S. dollar plunged on Wednesday while the yuan soared

The U.S. dollar tumbled on Wednesday after rallying in the previous session. Its index dropped by 0.7% to 104.25 against a basket of six major currencies. In February, the index surged forward by almost 3%. That was its first monthly gain after enduring a four-month losing streak. Strong U.S. economic data bolstered market sentiment in recent weeks. As the U.S. economy remains resilient, investors expect more rate hikes from the Fed. Futures pricing forecasts the rates to hit a peak at approximately 5.4% by September.

Michael Every, the global strategist at Rabobank, noted that the agency might decide to increase by 5.5%, but a 6% hike is also possible. Moreover, other central banks won’t be able to match or follow the Fed’s rates. Thus, the greenback will likely rally in the coming months again.

In Asia, the Chinese yuan soared today. New data showed that manufacturing activity in the country expanded at its fastest pace since April 2012. Non-manufacturing activity also increased at a faster pace in February. Besides, the Caixin/S&P Global manufacturing PMI reading for February surpassed analysts’ expectations.

On Wednesday, the onshore yuan exchanged hands at 6.8854 per USD. The Chinese currency hit its highest level since February 21. The offshore yuan also climbed by 1.3% to 6.8683 per USD. The latter seemed on track for its largest one-day gain since late November.

Niels Christensen, the chief analyst at Nordea, noted that the new reports confirmed economists’ expectations that the growth outlook has improved significantly in the country. China eased its Covid-19 restrictions several weeks ago. With the reopening coming so late, traders worried that the rebound would be slow, but the opposite is true thus far. The risk-on sentiment enveloped markets today.

How are the euro and sterling faring?

The common currency jumped on Wednesday. Regional German inflation data hinted that price pressures are still high in the country. That means the ECB might continue hiking interest rates.

According to the data, inflation remained largely unchanged in five German states in February. However, traders are now waiting for preliminary pan-German inflation data, which is due later today. It will offer new figures based on reports from 16 German states.

On Tuesday, several different reports showed that inflation is accelerating in France and Spain, as well. These two are also the euro area’s biggest economies. This news only reinforces expectations about additional rate increases from the European Central Bank.

The euro skyrocketed by 0.9% against the dollar today, trading at $1.0672 at last. It seemed set for its biggest daily gain since February 1. Nordea’s Christensen noted that inflation data boosted the single currency. However, fresh reports might change investors’ perspectives.

Meanwhile, the British pound jumped by 0.2% to $1.2049. despite that, the sterling lost some of its earlier gains after a statement from Bank of England governor Andrew Bailey. The latter commented that the BOE might already be at the end of its rate-rising cycle.

Sterling gained 1% at the start of this week. The U.K. announced a post-Brexit Northern Ireland trade deal with the EU, supporting the British currency.

What about the other major currencies? 

The Australian and New Zealand dollars rallied thanks to strong Chinese data. The Aussie surged forward by 0.7% to $0.6774. The currency recovered some of its losses suffered when it hit a two-month low earlier on Wednesday. Weak domestic economic data sent the Aussie in the red for a time. On the other hand, the kiwi dollar climbed by 1.3% to $0.6263.

In Asia, the greenback plummeted by 0.65% versus the Japanese yen. It exchanged hands at 135.36 yen at last. However, the dollar surged by almost 5% against the yen last month.

EM Asian currencies and shares also traded in the green today. Thailand’s baht skyrocketed by 0.7%. It remained on track for its best session since January 13. At the same time, the Singapore dollar added 0.2%, with Malaysia’s ringgit edging up by 0.1%. Equities in Taipei and Manila soared by 0.6% each. On the other hand, Bangkok stocks added 0.1%.

On Wednesday, the rupiah and shares in Jakarta remained flat, though. In India, the rupee rallied by 0.2%. Meantime, shares increased by 0.7%. The new data showed that economic growth slowed further in the December quarter in the country. But the government remains optimistic.  

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