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Dollar Retreats and Yuan Soars on Strong Chinese Data

On Wednesday, the US dollar faced a setback in Europe, while the Chinese yuan saw a sharp rise following positive economic data. The data showed a recovery in China's economy, leading to risk-on sentiment.


Dollar Index Slips Lower

At 02:55 ET, the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 104.672.

China's Manufacturing Activity Rises

Data released on Wednesday showed that China's manufacturing activity had expanded at the fastest pace in more than a decade in February. This confirmed the economic recovery in China, which gained momentum after the country relaxed most of its anti-COVID measures in January.

China's PMI Climbs Higher

China's manufacturing Purchasing Managers' Index rose to 52.6 in February, up from January's 50.1. The non-manufacturing PMI also increased in February, reaching 56.3, higher than the previous month's reading of 54.4. The composite PMI for manufacturing and non-manufacturing activity rose to 56.4, the fastest pace over three years.

Chinese yuans
Chinese yuans

Antipodean Currencies Move Higher

USD/CNY fell 0.5% to 6.9010, moving further from its lowest level this year. NZD/USD rose 0.8% to 0.6233, and AUD/USD climbed 0.5% to 0.6760. These antipodean currencies are often used as liquid proxies for the yuan.

EUR/USD Boosted by Risk-On Sentiment

EUR/USD rose 0.4% to 1.0614, boosted by the risk-on sentiment ahead of the release of the manufacturing PMIs for the Eurozone, Germany, and France later in the day. GBP/USD also rose 0.4% to 1.2073, retaining some strength after Britain struck a post-Brexit Northern Ireland trade deal with the European Union.

Dollar Losses are Likely to be Limited

However, dollar losses are likely limited as the economic data suggests a resilient US economy with sticky inflation, indicating more Federal Reserve hikes to come. Analysts at ING noted that this week's key data releases would be the ISM surveys, focusing on Friday's ISM services index.