By Peter Nurse
Investing.com - The U.S. dollar weakened in early European trade Tuesday and the Chinese yuan gained on hopes the Chinese government was set to ease its tight COVID-related mobility restrictions, boosting risk appetite.
At 03:05 ET (08:05 GMT), the Dollar Index , which tracks the greenback against a basket of six other currencies, fell 0.4% to 106.165, after rising 0.5% overnight.
China reported on Monday its first drop in the number of daily infections in more than a week. This followed civil unrest over the weekend as frustrations over the country’s prolonged mobility restrictions boiled over.
The country's National Health Commission on Tuesday said it will present measures to accelerate vaccination of the over 80s, a vulnerable age bracket in which over one-third is still unprotected.
The move is the first clear signal of official intent since the wave of anti-government protests, and traders have started to speculate that this is the first stage of the Chinese government scaling back its anti-COVID policies.
USD/CNY fell 0.7% to 7.1592, retreating from the previous session’s two-week high after the protests and record-high COVID infections had prompted concerns about the growth potential of the world's second-largest economy.
The U.S. dollar had traded higher Monday, boosted not only by its status as a safe haven, but also by more hawkish talk from Federal Reserve policymakers.
Richmond Federal Reserve Bank President Thomas Barkin said on Monday he supports moving to smaller interest-rate hikes in the central bank's fight to bring down too-high inflation, but this could mean a higher ultimate peak.
"I'm very supportive of the path that is slower, probably longer and potentially higher," Barkin said in an interview with Bloomberg TV. "You obviously don't want to do damage you don't have to do. But the focus is on inflation and getting inflation under control."
EUR/USD rose 0.5% to 1.0387, with the focus on inflation in the Eurozone.
Spanish inflation rose 6.8% on the year in November, a drop of 0.1% on the month, below last month's 7.3%. German CPI numbers are also due for release later in the session, ahead of Wednesday’s Eurozone CPI data.
ECB President Christine Lagarde said on Monday, in a speech to the European Parliament, that the region’s inflation has not peaked and it risks turning out even higher than currently expected.
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