The Dollar Dropped

The dollar fell on Tuesday after China announced that it would scrap its COVID-19 quarantine rule for inbound travelers, a significant step toward reopening its borders that boosted risk-sensitive currencies such as the New Zealand and Australian dollars.

According to the National Health Commission, China will no longer require inbound travelers to enter quarantine upon arrival beginning January 8, despite an increase in COVID cases. At the same time, Beijing reduced COVID case management regulations from the top-level Category A to the lighter Category B.

In mostly thin trading during the year-end holiday season, the New Zealand dollar rose 0.7% to $0.6316. Meanwhile, the Australian dollar rose 0.5% to $0.6765. These two currencies are frequently used as liquid substitutes for the Chinese yuan.

The offshore yuan strengthened by 0.1% to 6.9686 per dollar. In other news, the euro gained 0.1% against the dollar, reaching $1.0648. The yen rose 0.2% against the dollar to 133.18.

China’s gradual dismantling of its zero-COVID policies could provide an additional boost to the euro, which has risen due to the European Central Bank taking a much tougher stance on inflation than investors expected.

The UK markets did not operate for a public holiday. Hence, sterling trading was light, leaving the pound flat against the dollar at around $1.2071.

Other US Related Data

The dollar index in the United States fell 0.2% to 104.11.

Consumer spending in the United States barely increased in November. Meanwhile, inflation fell further, bolstering expectations that the Fed will ease up on its aggressive monetary policy tightening.

Yen Falls

Despite a rise in short-term government bond yields to their highest level in over seven and a half years, the Japanese yen fell following an auction that drew relatively weak demand.

Following the Bank of Japan’s (BOJ) surprise decision to adjust its monetary policy last week, the yen is on track for its biggest quarterly rally against the dollar since 2008.

BOJ Governor Haruhiko Kuroda dismissed the possibility of a near-term exit from the ultra-easy monetary policy on Monday, even as markets and policymakers are increasingly focusing on what happens after Kuroda’s tenure ends in April next year.