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Dollar Recovers From Five-Month Low

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The dollar was spotted trading higher, rising from a almost five-month low, as traders are thinking about strong U.S. manufacturing data with regard to a potential prompt normalization of Federal Reserve monetary policy. 

The Dollar Index, which tracks the greenback against a bundle of six other currencies, traded up 0.1% at 89.935, after dropping as low as 89.662, touching the lowest rate since Jan. 7 at 89.533.

EUR/USD traded mostly flat at 1.2216, not far from a near five-month high of 1.2266 reached last week, USD/JPY gained 0.2% and traded at 109.67, GBP/USD increased 0.1% to 1.4153, after easing off a three-year high of 1.4250 reached Tuesday, and USD/CAD traded mostly flat at 1.2067 after falling to a fresh six-year low of 1.2007 overnight.

On Tuesday, the Institute for Supply Management said its index of U.S. manufacturing activity grew in May as pent-up demand amid a reopening economy boosted orders. The ISM’s index of national factory activity increased to a reading of 61.2 last month from 60.7 in April, above the 60.9 forecast.

“We suspect that for every inflation number the Fed will get slightly more worried about the transitory call,” said analysts at Nordea, in a note. “We still believe that tapering will happen later in 2021 and that the dot plot will see more dots for rate hikes in 2022.”

AUD/USD dropped 0.1% to trade at 0.7748, after Australia’s economy expanded faster than forecast in the first three months of the year, as gross domestic product advanced 1.8% from the final quarter of 2020.

USD/CNY gained 0.1% to 6.3829, rebounding from the three-year low of 6.3526 reached on Monday as policy makers took steps to cool its advance including raising banks’ FX reserve requirements.

USD/TRY rose 1.1% to 8.6208, with the Turkish lira falling to fresh record lows after President Recep Tayyip Erdogan renewed calls for lower interest rates, continuing to expound his unorthodox belief that lower borrowing costs will help slow inflation.

This will increase the pressure on central bank Governor Sahap Kavcioglu, who was recently installed after Erdogan dismissed the previous governor for tightening policy too much.

 

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