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The
dollar index, which measures the greenback against six major
peers, hit a peak of 106.81 in early European trading, regaining
all its losses from last week when lower-than-expected U.S.
inflation data sent investors out of the dollar and back towards
risk-friendly assets.
The index was last up 0.12% at 106.6.
"The U.S. growth picture is still intact, but the overall global
picture remains fragile, given concerns about China, and that
has put a dampener on risk sentiment and hurt the Aussie and
some emerging market risk currencies," said Sim Moh Siong,
currency strategist at Bank of Singapore.
China's central bank on Monday unexpectedly cut a key interest
rate to try to revive credit demand to support the COVID-hit
economy after a string of weak economic data releases for July.
The Australian dollar fell 0.44% to $0.699 on Tuesday, dipping
back below the symbolic $0.7 level. Australia's close trade ties
with China means its currency is sometimes treated by traders as
a liquid proxy for China's yuan.
The U.S. dollar climbed as high as 6.84146 on the yuan traded
offshore, a level last seen in mid-May.
The move back to the safety of the dollar also hurt the euro,
which fell 0.18% to $1.0142, and sterling, which was last
trading at $1.2026, down 0.23% on the day,
The dollar also firmed 0.3% against fellow safe-haven the
Japanese yen to 113.7 yen.
The dollar index fell as low as 104.63 last week for the first
time since the end of June after sliding from a two-decade high
at 109.29 in mid-July, as markets pared bets for continued
aggressive Fed tightening amid signs of a cooling in the economy
and inflation.
However in recent days, several Fed policymakers have spoken of
the need for continued rate hikes.
"Fed officials have no choice but to sound tough in the face of
a very, very tight labour market and far too high inflation,"
Kit Juckes, the head of FX strategy at Societe Generale, wrote
in a research note.
"It's hard to build a compelling case to sell the dollar in that
world."
(Reporting by Kevin Buckland and Alun John; Editing by Shri
Navaratnam, Simon Cameron-Moore and Jan Harvey)
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