The U.S. dollar was slightly weaker versus many of its rivals on Wednesday, as investors focused on new Brexit-inspired turmoil surrounding the British pound, as well as China’s reiteration that it wouldn’t use its yuan as a trade war tool.
The ICE U.S. Dollar Index DXY, +0.05% was down 0.1% at 94.572.
The British pound GBPUSD, -0.0761% had a volatile morning on Wednesday, starting off on a stronger note and rising to a high of $1.3214 following higher-than-expected consumer price inflation numbers.
Just a week ago, the prospect of another interest rate rise in the U.K. sounded distant. Now with CPI at 2.7% — well over the Bank of England’s 2% target — talk of another rise suddenly sounds less outlandish,” said Jacob Deppe, head of trading at online trading platform Infinox.
But sentiment turned as a report from the Times of London said U.K. Prime Minister Theresa May was going to reject the European Union’s new proposal regarding the Irish border, which brought sterling to a session low of $1.3098.
EU chief negotiator Michel Barnier said late Tuesday that Brussels was ready to improve its offer on the Irish border as both the U.K. and the EU are trying to avoid a hard border between Northern Ireland and the Republic of Ireland.
Don’t miss: Why another Brexit summit is unlikely to put investors at ease
The pound last bought $1.3144, compared with $1.3147 late Tuesday in New York. The euro EURUSD, +0.0171% meanwhile, rose to $1.1680 against the dollar versus $1.1670, and £0.8886 against the pound EURGBP, +0.1127% compared with £0.8876.
Elsewhere, the Bank of Japan kept its monetary policy unchanged and reiterated that interest rates would remain ultralow for “an extended period”. Japan is widely viewed to be one of the last developed market countries to move down the path of policy normalization.
The greenback was little changed versus Japan’s yen USDJPY, -0.09% fetching ¥112.31.
On the trade war front, China’s Premier Li Keqiang reiterated that China wouldn’t devalue its yuan as a tool in the spat, which lend some support to the Chinese currency. The dollar bought 6.8542 yuan in Beijing USDCNY, -0.1093% and 6.8538 yuan offshore USDCNH, -0.0729% both up 0.1%.
On Tuesday, Beijing announced it would retaliate against new U.S. tariffs with import tariffs of its own on $60 billion worth of U.S.-made goods. President Donald Trump said Monday that the U.S. would impose a 10% levy on about $200 billion of Chinese goods.
“The reassuring comments from the Chinese premier will go a long way towards reassuring investor confidence in China. Not only will it help stabilize the yuan, but it can also play a factor in helping currencies across the region, when factoring in how important China has become to the global economy,” said Lukman Otunuga, research analyst at FXTM.
Indeed, the likes of the South Korean won USDKRW, -0.11% the Taiwan Dollar USDTWD, +0.0097% and Indian rupee USDINR, -0.3956% were stronger versus the greenback on Wednesday.
Read: India tries to stem rupee selloff in another round of emerging-markets turmoil
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