Dollar steadies as optimism over China reopening turns to caution

SINGAPORE : The dollar steadied on Thursday after riding long-end U.S. Treasury yields higher overnight, as initial optimism over China’s reopening fizzled.

Following China’s removal of its quarantine rule for inbound travellers beginning Jan. 8, countries such as the United States, Japan and India said they would require COVID tests for travellers from China.
The speed at which the country has scrapped COVID rules has left its fragile health system overwhelmed and sparked concerns about the spread of the virus.

The Japanese yen was last nearly 0.5 per cent higher at 133.83 per dollar, though it remained pinned near a one-week low of 134.50 that was hit in the previous session.

Sterling rose 0.19 per cent to $1.2040, but was similarly not far off its three-week trough of $1.1993 hit last week.

The euro was up 0.15 per cent at $1.0628.
“Many countries adopting an additional layer of testing for travellers arriving from China reflect hobbled resumption of travel amid China’s outbreak,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank. “This might also fuel fears of new strains of COVID that could once again disrupt the global recovery.”

The uncertainty over the global economic outlook, along with mounting worries about a recession in the U.S., saw the two-year Treasury yield, which typically moves in step with interest rate expectations, slip overnight. It last stood at 4.3512 per cent.

Meanwhile, the yield on the benchmark U.S. 10-year Treasury last stood at 3.8656 per cent, after rising to a more than one-month high of 3.8920 per cent overnight.

Against a basket of currencies, the U.S. dollar index was firm at 104.28.

“Near term, there’s still the big question mark as to how soon can we get over this COVID resurgence,” said Moh Siong Sim, a currency strategist at Bank of Singapore. “But in the medium term … I think the growth outlook for China can be steadier and less bumpy, and that in turn means the rest of the world could benefit from that as well.”

The Aussie was last 0.16 per cent higher at $0.6751, while the kiwi gained 0.33 per cent to $0.6331.
The Chinese offshore yuan rose marginally to 6.9932 per dollar.

In cryptocurrencies, Bitcoin edged 0.13 per cent higher to $16,561, while Ether gained 0.26 per cent to $1,192.60, though both are on track for a decline of more than 60 per cent this year.