The dollar pared some of its strong overnight gains on Tuesday after investors rushed into the safe-haven currency on nerves over the COVID outbreak in China, although risk-wary sentiment supported demand for dollars.
Antipodean currencies, often used as liquid proxies for the Chinese yuan, were particularly affected by the fresh bout of risk aversion, with the Aussie down almost 1% overnight.
It was last up 0.12% at $0.6614.
The kiwi fell more than 0.8% and was last higher 0.15% at $0.6109.
China’s capital warned on Monday that it was facing its worst test of the COVID-19 pandemic, with a surge in COVID cases prompting new restrictive measures.
A death from the virus was also recorded in Beijing for the first time since late May.
The offshore yuan rose 0.1% to 7.1665 per dollar in early Asian trade on Tuesday after falling more than 0.7% overnight.
“The appeal of the US dollar as a haven is coming back into fashion as concerns over China and the COVID outbreak make markets jittery,” said Rodrigo Catril, currency strategist at National Australia Bank (NAB).
The Japanese yen fell more than 1% to a weaker side of 142 per dollar overnight and last traded at 142.01.
“The curiosity is how Japan has also shown a lot of sensitivity … if anything, the bottom line is that the appeal of Japan as a haven is no longer there,” NAB’s Cutril said, referring to the yen. “It’s more like a plug in the ocean that depends on risk aversion as well as changes in the 10-year Treasury yield.”
U.S. Treasury yields on most maturities rose overnight as investors continued to reassess expectations for how high the Federal Reserve will raise rates in an attempt to lower inflation from near 40-year highs.
The benchmark 10-year Treasury yield rose slightly overnight to last trade at 3.825%.
The euro was up 0.09% at $1.0250, recovering some of its 0.8% overnight losses, while the pound sterling was up 0.24% at $1.1843 after falling more than 0.5% overnight.
The US Dollar Index was last down 0.06% at 107.71.
It rose nearly 0.8% overnight, its biggest daily gain since November 3.
Speeches by Fed speakers overnight produced a few surprises, with Cleveland Fed President Loretta Mester saying the central bank could move to a smaller interest rate hike starting next month.
San Francisco Fed President Mary Daly said the real impact of a rate hike is likely to be greater than her short-term target rate suggests.
“The Fed’s comments remain consistent with recent rhetoric,” ING economists said in a note.
In the crypto world, cryptocurrency lender Genesis is the latest victim to find itself in the spotlight following the collapse of the FTX cryptocurrency exchange.
Genesis said Monday it has no plans to file for bankruptcy anytime soon, although Bloomberg News, citing sources, said Genesis is struggling to raise new money for its lending arm and warned investors it may need to file file for bankruptcy if it can’t find financing.
Bitcoin was last up 0.6% at $15,856, while Ether lost 0.05% at $1,105.10.
