SINGAPORE/LONDON—The dollar retreated on Tuesday after rallying the previous day when investors rushed to the safe-haven currency on worries about China’s COVID-19 flare-ups, while fears of fresh contagion from the collapse of crypto exchange FTX pressured bitcoin.
The euro was up 0.3 percent at $1.0265 after an 0.8 percent loss on Monday, sterling rose 0.46 percent to $1.187, partially reversing its 0.6 percent fall, and the dollar was at 141.86 yen, down 0.6 percent after a 1.2 percent gain.
Flows to the dollar on Monday came as Beijing warned that it was facing its most severe test of the COVID-19 pandemic, with a surge in COVID-19 cases sparking fresh restriction measures. Deaths from the virus were also recorded in the capital for the first time since May.
Restrictions in Beijing and elsewhere tightened further on Tuesday, though currency traders seemed to think the previous day’s moves were sufficient.
Lee Hardman, senior currency analyst at MUFG said in a note that more cautious remarks from U.S. Federal Reserve officials were a factor in the dollar losing some momentum on Tuesday.
Cleveland Fed President Loretta Mester said the central bank can downshift to smaller interest rate hikes from next month, and San Francisco Fed President Mary Daly said the real-world impact of interest rate increases is likely greater than its short-term rate target implies.
In Europe on Tuesday, data from the European Central Bank showed the eurozone’s current account deficit narrowed in September.
“While we flagged the big deterioration of the current account earlier this year as something that was creating a challenge for the euro, we may already be seeing signs that the worst is now over,” said Dominic Bunning, head of European FX research at HSBC, though he cautioned against reading too much into one data point.
The fresh bout of risk aversion related to China weighed particularly on the antipodean currencies— often used as liquid proxies for the Chinese yuan—with the Aussie sliding nearly 1 percent on Monday. It recouped some losses on Tuesday, rising 0.5 percent to $0.6639.
The trend held true further from China as well though, with the dollar falling 0.43 percent against the Swiss franc to 0.9552, reversing a similar gain the day before.
In cryptocurrencies, bitcoin fell to a new two-year low of $15,479 on Monday, another victim of Monday’s rush to the dollar, and also amid jitters about the health of crypto broker Genesis.
Genesis said on Monday it has no plans to file for bankruptcy imminently.
The lending unit suspended redemptions last week, citing fallout from the collapse of FTX, which filed for bankruptcy on November 11.
