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China's Reopening Boosts Risk Sentiment, Euro Stabilizes

The Euro recovered from three-week lows on Wednesday as riskier currencies saw gains due to optimism about China's economic growth following the easing of COVID-19 restrictions.

Euro Banknotes

The Australian dollar, sensitive to trade and China, rose 1% to $0.6800, while the yuan gained 0.4% to reach 6.8913 per dollar. This came as state media in China declared a "final victory" over the pandemic and talked of supporting the housing sector. The Thai baht hit six-month highs due to expectations of improved tourism in the country, and the Singapore dollar reached an 18-month high on Tuesday.

Federal Reserve Meeting Minutes and US Economic Data in Focus

Investor focus turned to release minutes from the Federal Reserve's previous meeting and upcoming US economic data. The US dollar index rose 1% on Tuesday to 104.73, largely due to a drop in the Euro, and it eased slightly on Wednesday to 104.57. The yen was 0.1% stronger at 130.83 per dollar. The British pound hovered at $1.1973, and the New Zealand dollar nudged 0.4% higher to $0.6273. Despite these movements, larger shifts were limited in the thinned-out Asia trading session due to the upcoming data and Federal Reserve meeting. Ray Attrill, head of FX strategy at National Australia Bank, stated, "We're back to some A-league economic data, so maybe we'll get some more fundamentally-driven price action out of that."

Germany's Inflation Falls Unexpectedly, Euro Drops 1%

The Euro experienced its sharpest drop in over two months on Tuesday, losing 1%, following data showing a larger-than-expected drop in German inflation. Headline German CPI fell to an annual 8.6% in December, down from 10% the previous month, surprising analysts who had predicted a rate of 9.1%. This drop in inflation caused the Euro to weaken and boosted bunds, or German government bonds.

COVID-19 Restrictions Eased in China, Positive Impact on Southeast Asian Economies

As China continues to ease COVID-19 restrictions and reopens its economy, neighboring Southeast Asian countries are seeing positive impacts on their economies. The Thai baht has reached six-month highs due to expectations of improved tourism in the country as China lifts quarantine requirements for travelers. The Singapore dollar also hit an 18-month high on Tuesday. These developments signal a potential recovery for tourism-dependent economies in the region.