The U.S. dollar fell on Tuesday. What about Euro and Yen?

The greenback plummeted on Tuesday, reversing its rally from the previous session. Traders bought the safe-haven dollars on Monday as reports about surging coronavirus cases in China worried the markets. The currency jumped especially high after the Chinese government warned that it was currently facing its most severe test of the pandemic. For the first time since May, the capital recorded Covdi-19 deaths.

Consequently, the authorities announced tightening restrictions in Beijing and other regions of the country on Tuesday. Risk-off mood pushed the antipodean currencies lower yesterday. The Australian dollar tumbled by almost 1% during the previous session. However, it managed to recover some losses on Tuesday. The Aussie exchanged hands higher by 0.5% to $0.6639 at last.

Meanwhile, the dollar dropped by 0.43% versus the Swiss franc to 0.9552, losing its gains from Monday. U.S. Federal Reserve officials seemed more cautious about their interest rate predictions. That was one of the reasons why the greenback lost some momentum on Tuesday – noted Lee Hardman, the senior currency analyst at MUFG.

According to San Francisco Fed President Mary Daly, interest rate increases will likely have a greater impact on the global markets than its short-term rate target implies. On the other hand, Cleveland Fed President Loretta Mester noted that the Fed might decide to try smaller interest rate increases from next month.

How are the Euro and Sterling faring?

The common currency surged forward by 0.3% on Tuesday. It traded at $1.0265 after plunging by 0.8% in the previous session. The British Pound also jumped by 0.46% to $1.187, partially recovering losses after its 0.6% plunge. At the same time, the U.S. dollar shaved off 0.6% at 141.86 Japanese yen after climbing by 1.2% on Monday.

The European Central Bank released new data today. According to it, the euro area’s current account deficit narrowed significantly in September. Dominic Bunning, the head of European FX research at HSBC, stated that while they expected the big deterioration of the current account to create a challenge for the Euro, there are some signs that the worst is already over. Despite that, he also mentioned that traders shouldn’t read too much into one data point.

On Tuesday, Emerging market stocks continued trading in the red due to fears about the Chinese economy’s possible downfall if the country further tightened restrictions to contain COVID-19 outbreaks. However, Hungary’s forint climbed up ahead of a central bank meeting. Investors expect the bank to keep the key rate unchanged.

After tumbling down on Monday, Mainland China shares firmed in this session. Beijing supported the embattled property sector, bolstering the stocks. Still, Hong Kong shares plummeted by another 1.3%, extending their fall to a fifth consecutive session.

Furthermore, MSCI’s China-heavy index of EM shares dropped by 0.4%, hitting one-week lows. The Chinese government shut down shopping malls, parks, and museums in Beijing today. Other Chinese cities also resumed mass testing for coronavirus as infection cases soared.

What do the analysts say?

Olivier d’Assier, the head of applied research, APAC at Qontigo, noted that supply chain disruptions from lockdowns would hurt regional manufacturers along with Chinese ones. Until there is positive news, investors and traders will prefer to stay away instead of participating in bargain-hunting.

Mounting concerns about China’s lockdowns come after the markets were already shaken due to worries about the possible global economic recession. Traders feared that the central bank’s aggressive monetary policy tightening to hinder rising inflation would also stop the growth.

Despite the risk-off mood, shares rallied in central Europe, India, and Turkey. On Tuesday, several EM currencies strengthened as the dollar declined. South Africa’s rand, and Malaysia’s ringgit added between 0.2% and 0.4%.

In South Africa, investors are waiting for the inflation figures, along with a central bank policy decision. Some economists expect a 75 basis points increase. JPMorgan analysts think that the central bank might consider slowing the pace of tightening, though.

On Tuesday, Hungary’s forint climbed up by 0.1%. It exchanged hands at around 408 per Euro. The country’s central bank will likely maintain the base rate on hold at 13%. It promised to offer its new quick deposit tool at an 18% rate to support its declining currency.

Meantime, Commerzbank’s EM and FX analyst Tatha Ghose stated that the spectrum of market interest rates fell modestly after yesterday’s announcement, which turned out to be Forex-negative.

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