This follows more hawkish comments overnight from two U.S. Federal officials, which helped to stem recent losses ahead of remarks by Fed chair Jerome Powell later in the day.
Impact of Fed Rates on Inflation
The Dollar has been sliding as markets grow increasingly doubtful that the Fed will have to take interest rates above 5% to cool inflation, as the effects of its aggressive rate increases last year have already been felt. Last week's employment report showed that while the U.S. economy added jobs at a solid clip in December, it also recorded a slowdown in wage growth.
Fed Officials Continue to Hold Rates High
However, many Fed officials continue to say rates have further to go and will stay elevated. Simon Harvey, head of F.X. analysis at Monex Europe, stated that markets realize we've reduced exposure to the Dollar ahead of CPI. There is still a sizable risk that U.S. inflation conditions remain more persistent. The Fed has called it right and will have to hold higher rates for longer.
Impact of China on Risky Assets and Currencies
China's rapid reopening of its borders following pandemic restrictions also boosted riskier assets and currencies this week away from the greenback's safe-haven appeal, particularly moving China-linked coins. The China-sensitive Australian Dollar spiked at a more than four-month peak of $0.6950 in the previous session. The offshore Yuan last traded at 6.7889 per Dollar after hitting its most potent in five months of 6.7590 earlier in the session.