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The dollar nursed losses against most currencies on Wednesday amid some speculation the U.S. Federal Reserve could take steps to curb a recent rise in bond yields at its policy meeting.

The Australian and New Zealand dollars pulled back slightly against the greenback but sentiment remained positive as economic activity resumes in both countries following the lifting of coronavirus restrictions.

The main focus is a Fed policy meeting later on Wednesday. While no major changes are expected, recent rises in yields have pushed up the dollar due to increasing signs the U.S. economy is stabilizing, but a full-fledged recovery  from the coronavirus outbreak is still distant.

Some analysts are playing down the chance the Fed will adopt yield curve control to guide 10-year Treasury yields lower, but uncertainty about the outcome of the Fed meeting could keep the dollar under pressure.

“The Fed can afford to wait and see on yield curve control because the U.S. economy has gotten past the crisis phase and only just entered the healing phase,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“The markets got overly optimistic and are adjusting lower, but this is a good chance to buy the dollar on the dip.”

The dollar was little changed at 107.72 yen on Wednesday in Asia following a 0.6% decline in the previous session.

Against the British pound, the greenback traded at $1.2732, close to a three-month low.

The dollar bought 0.9512 Swiss franc on Wednesday in Asia after falling 0.7% on Tuesday.

The yield on benchmark 10-year Treasury notes was little changed at 0.8270% on Wednesday. Long-term Treasury yields fell on Tuesday and the yield curve flattened slightly as traders adjusted positions before the Fed meeting.

U.S. central bankers on Wednesday will also publish their first economic projections since the coronavirus pandemic set off a recession in February.

Estimates are expected to signal a collapse in output this year and near-zero interest rates for the next few years.

The Australian dollar pulled back from an 11-month high to trade at $0.6958, while the New Zealand dollar fell from its strongest level since late January and settled at $0.6961.

The Antipodean currencies have been on a stellar run against the greenback due to hopes for economic recovery, prompting some investors to book profits.

Some traders are worried about a deterioration in diplomatic relations between Australia and China, which has also weighed on the Aussie.

Elsewhere in Asia, the Chinese yuan and the Korean won drifted higher against the dollar, but trading was subdued overall as investors avoided big moves before the Fed’s meeting.

The euro traded at $1.1340. Against the pound, the common currency bought 89.10 pence, on course for a second day of gains.

Concerns about progress in trade talks between Britain and the European Union continue to hamper both the euro and the pound.

The EU’s chief Brexit negotiator, Michel Barnier, is scheduled to speak later on Wednesday, which may yield details that will help determine whether market sentiment will improve.

The U.S. dollar fell and commodity currencies gained on Monday, as risk appetite increased on optimism about recovery from the coronavirus pandemic amid a blockbuster May U.S. jobs report last Friday.

The safe-haven Japanese yen rose against the dollar, reversing losses the past several days as risk sentiment gained with growing recovery hopes.

“There has been this unwinding of negativity since the last week of May, particularly negative U.S.-China bets,” said Erik Bregar, head of FX strategy, at Exchange Bank of Canada in Toronto.

Commodity currencies such as the Australian, New Zealand, and Canadian dollars were well-bid. The New Zealand dollar, for one, climbed to its highest in four months after New Zealand said it had stopped transmission of the coronavirus within the country.

New Zealand Prime Minister Jacinda Arden on Monday said the country would lift all virus-containment measures apart from border controls, making it one of the first countries to do so.

But as the United States and economies around the world reopen, there have been nagging doubts as to where the recovery is headed.

“The UK, for instance, plans to reopen and one of the things to consider is Brexit,” said Juan Perez, currency trader at Tempus Inc in Washington. “Once we establish that Brexit is one of those 2019 issues that needs to be resolved, we could see the major rally in the euro come under pressure because the market may focus once again on what type of partnership Europe would have with the UK,” he added.

In afternoon trading, the dollar index dipped 0.1% to 96.641 in choppy trading, after having gained overnight.
The dollar fell sharply against the yen, down 1.1% at 108.33 . It also dropped 0.6% against Swiss franc, another safe haven, to 0.9566.

The euro was higher against the dollar despite data showing German industrial output plunged the most on record in April as the pandemic forced companies in Europe’s largest economy to scale back production.

The euro was last up 0.2% at $1.1303. It reached a three-month high of $1.1384 last week after the European Central Bank announced it was expanding its stimulus program.

The New Zealand dollar rose 0.8% versus the greenback to US$0.6560, earlier hitting a high of US$0.6564, its strongest since late January. The Australian dollar also rose 0.7% to US$0.7017, with the Canadian dollar also rising, trading 0.4% higher at C$1.3366 per U.S. dollar.

Investors are now focused on the U.S. Federal Reserve policy meeting this week. The Fed will need to balance signs that economic fallout from the pandemic is past its worst against evidence the virus itself is not yet under control.

The U.S. dollar fell against the Antipodean currencies and the British pound after surprising improvement in U.S. labor market data bolstered expectations for economic recovery, which reduced safe-harbor demand for the greenback.

The Australian and New Zealand dollars both rose to their strongest since January after data showed a smaller-than-expected fall in Chinese exports, which supports commodity currencies.

In contrast, the U.S. dollar traded near its highest in more than two months against the yen, supported by recent gains in long-term Treasury yields as investors await the outcome of a two-day U.S. Federal Reserve meeting ending on Wednesday.

Sentiment has improved dramatically in the currency market as traders focus on signs of a rebound from the coronavirus outbreak as economies reopen from lockdowns, which has hurt the dollar and driven money into so-called risk-on trades.

“Commodities and emerging market currencies are clearly finding it easier to rise against the dollar on hopes of economic recovery, but it is a different story when it comes to the yen,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

“For dollar/yen the focus is more on yields, which is pushing the currency pair higher.”

Japan’s economy shrank less than initially estimated in the first quarter due to the coronavirus outbreak, revised data showed earlier on Monday, but the yen took the data in its stride.

The Australian dollar traded at $0.6971, approaching its firmest since Jan. 2.

The New Zealand dollar rose to $0.6537, the highest since Jan. 29.

New Zealand has no active cases of Covid-19 in the country for the first time since Feb. 28, the health ministry said in a statement on Monday.

New Zealand will announce later on Monday whether it will remove all remaining social distancing and economic restrictions, barring border controls.

Against the pound, the dollar fell 0.25% to $1.2705 in Asia on Monday, close to its lowest since March 12.

The dollar traded at 109.49 yen, close to a two-month high set on Friday.

Underpinning the dollar was a surprising recovery in U.S. employment in May after the economy suffered record job losses in April, data showed on Friday.

The jobless rate also fell to 13.3% last month from a post-World War Two high of 14.7% in April, offering hope that the world’s largest economy is starting to stabilize after the pandemic triggered a wave of job cuts.

Some investors may avoid making big trades before the Federal Reserve meeting ending on Wednesday to see how Chairman Jerome Powell views a recent rise in 10-year Treasury yields and a steepening in the yield curve.

The onshore yuan was little changed at 7.0863 per dollar after exports from China, the world’s second-largest economy, fell less in May than the market expected, data showed on Sunday.

The pandemic first emerged in China late last year and has caused a sharp contraction in global economic activity, but many traders are now focused on the pace of recovery in the second half of this year.

Some analysts said there are still many risks to the outlook, including diplomatic tension between the United States and China, and the U.S. presidential election later this year.

Net short U.S. dollar positioning fell to $8.17 billion in the week ended June 2 from $8.6 billion the previous week, according to U.S. Commodity Futures Trading Commission data released on Friday, which may discourage some investors from selling the dollar further.

The euro traded at $1.1296 in Asia on Monday. The common currency is riding a wave of optimism after the European Central Bank said last week it will increase bond purchases to help the bloc’s weakest economies.

Sentiment will face a test later on Monday with the release of data forecast to show that German industrial output fell the most on record in April.

Sterling hovered around $1.26 on Wednesday after rising to a one-month high against a broadly weaker dollar as Britain showed signs it might be willing to compromise on sticking points to reach a Brexit deal.

The dollar fell against most currencies as investors pondered what the potential fallout might be from the mass protests against racism spreading across the United States. And prospects for more government stimulus and a global economic recovery emboldened investors to step up holdings of riskier assets.

Sterling continued to be supported by signs that Britain and the European Union might be able to reach a compromise on fisheries and trade rules as the two sides launched a fourth round of Brexit virtual talks this week to try to secure a free trade deal.

ING analysts said in a note to clients, however, that the rally could be short-lived as Brexit continues to be a “major headache for the pound.”

“GBP has enjoyed some temporary out-performance on reports of more flexibility in the UK Brexit position, but we doubt GBP can hold onto gains,” they said.

Against a weakening dollar, the pound touched $1.2608 around 0700 GMT, its highest since April 30. It was last at $1.2580, up 0.2% on the day.

Versus the euro, sterling lost 0.1% to 89.07 as the pound is still weighed down by many factors, including Brexit-related risks and speculation about negative rates.

Britain’s COVID-19 death toll neared 50,000 on Tuesday, confirming its place as one of the world’s worst hit countries.

The dollar was on the back foot on Tuesday as investors maintained their hope in a global economic recovery, despite growing concerns over U.S.-China tensions and mass protests across America over the death of a black man in police custody.

The U.S. dollar index against a basket of six major currencies hovered near its weakest level since mid-March, standing at 97.885.

It has fallen about 5% from a peak hit in March when panic over the Covid-19 pandemic gripped the world’s financial markets, prompting investors to scramble for the safety of dollar cash.

“There are some potential flashpoints such as U.S. demonstrations and China-U.S. tensions,” said Kyosuke Suzuki, director of forex at Societe Generale. “But, on the whole, the market is still moderately risk-on.”

The euro fetched $1.1126, little changed so far on Tuesday but holding near a 2-1/2-month high of $1.1154 touched on Monday.

The common currency gained traction after the European Union’s executive last month unveiled a 750 billion euro plan to prop up economies hammered by the coronavirus pandemic.

Sterling hit a one-month high of $1.2525 before stepping back to trade flat $1.2479.

U.S. manufacturing activity inched up from an 11-year low in May, an index showed, and although the reading was weaker than forecast, it aligned with market expectations that the worst of the economic downturn has passed.

Against the safe-haven yen, the dollar was at 107.68 yen, stuck in a well-worn range between 106 and 108 over the last several weeks.

Market risk sentiment was hurt only slightly on Monday when Bloomberg reported China had told state-owned firms to halt purchases of soybeans and pork from the United States, raising concerns that the trade deal between the world’s two biggest economies could be in jeopardy.

Investors’ economic optimism has so far also survived the rising social unrest in the United States where President Donald Trump vowed to deploy thousands of heavily armed soldiers and law enforcement to halt violence in the

U.S. capital and other cities if mayors and governors failed to regain control of the streets.

The protests erupted over the death of George Floyd, a 46-year-old African-American who died in Minneapolis police custody after being pinned beneath a white officer’s knee for nearly nine minutes.

The Australian dollar, often seen as a proxy bet on the strength of the Chinese economy, fetched $0.6789, having reached its highest levels since late January.

The currency hardly budged after the Reserve Bank of Australia kept its monetary policy on hold as expected.

The Chinese yuan gained slightly to 7.1200 per dollar, pulling further away from an eight-month low of 7.1765 touched last week.

“The Chinese authorities do not appear to intend to guide the yuan weaker now, certainly less so than they were when the yuan fell to 7.18 last September,” said Masashi Hashimoto, senior economist at the Institute for International Monetary Affairs in Tokyo.

The yuan hit an 11-year low of 7.1854 per dollar in September when diplomatic tensions intensified over Trump’s fourth round tariffs on Chinese products.

MSCI’s emerging market currency index also rose to its highest levels since mid-March with the Indonesian rupiah, Thai baht and Mexican peso all rising to more than two-month peaks.

The U.S. dollar fell against the euro for the third straight day on Thursday as the common currency continued to bask in the glow of the recently announced 750 billion-euro ($828.90 billion) coronavirus recovery fund amid improved risk appetite, leading investors to favor riskier assets.

The euro was 0.49% higher against the greenback at 1.1057. The single currency has risen 1.5% over the past three sessions.

The EU executive unveiled a plan on Wednesday to support economies hammered by the pandemic, hoping to end months of squabbling over how to fund a recovery.

The euro’s price action continues to be driven by global risk sentiment, even as market participants remain deeply skeptical that the EU recovery fund proposal will navigate the bureaucracy unscathed, said Simon Harvey, FX analyst at Monex Europe.

“We expect EURUSD volatility to remain well supported in the coming months,” Harvey said.

Overnight implied volatility gauges inched up to hit a one-month high above 8%, suggesting investors were prepared for unexpected moves in the common currency.

The dollar, which usually draws safe-haven flows in times of economic uncertainty, found little support on Thursday after the Labor Department reported another 2.1 million people filed for unemployment benefits in the week ended May 23, down 323,000 from the prior week.

“It’s still an extremely large number, but if the number of people continuing to file for unemployment benefits is decreasing then this should be viewed as a positive for the economy,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

The U.S. Dollar Currency Index, which measures the greenback’s strength against six other major currencies, was down 0.36% at 98.555, its weakest in nearly two months.

The pound recovered partially from the previous session’s sharp drop against the dollar after Wednesday’s reports that Brexit talks are at an impasse.

The dollar edged higher on Wednesday as worries about the U.S. response to China’s proposed security law for Hong Kong supported safe-haven demand for the greenback.

The yuan fell to the lowest in more than eight months after a media report that Beijing planned to expand the scope of its security legislation, which is likely to increase concerns about civil liberties in the former British colony.

The euro held gains against the dollar and the pound but faces a severe test when the European Commission is expected to release details of a financial rescue fund for the bloc later on Wednesday.

Financial markets have been caught in a tug-of-war between optimism and pessimism about the global outlook.

Some investors are betting on a resumption of business activity following the crippling coronavirus pandemic that brought the global economy to a standstill, but others worry the threat of U.S. sanctions against China for its treatment of Hong Kong could easily worsen risk sentiment yet again.

“We are in a broad risk-on trend, but the only thing that can change this is the U.S.-China relationship,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“More problems between these two countries would slow the dollar’s recent decline and potentially lead to dollar buying as a safe haven.”

The dollar edged up to $1.2322 against the pound on Wednesday in Asia, pulling away from its lowest level in two weeks.

The dollar rose to $1.0961 per euro, also pulling away from a one-week low.

It bought 0.9665 Swiss franc in Asia, following a 0.6% loss in the previous session.

The Australian dollar fell 0.17% to $0.6645, while the New Zealand dollar eased to $0.6191 as worries about U.S.-China tensions hurt demand for riskier assets.

The Aussie and the kiwi are often traded as liquid proxies for risk because of their close ties to China’s economy and global commodities.

The dollar remained locked in a narrow range at 107.49 yen, but the yen rose against the euro and the antipodean currencies on increased safe-haven demand.

Many of the places that were hardest hit by the coronavirus pandemic are now allowing more businesses to resume normal operations, leading to an unwinding of safe-haven bets on Tuesday.

However, the move faded on Wednesday as Asian stocks and U.S. Treasury yields fell, showing risk aversion remains.

U.S. President Donald Trump said on Tuesday the United States will announce before the end of the week its response to China’s planned security bill for Hong Kong.

Trump’s administration is considering sanctions on Chinese officials, Bloomberg News reported.

Onshore, the yuan fell to 7.1591 per dollar, the lowest since September 2019.

Beijing has expanded the scope of the draft national security legislation to include organisations as well as individuals, media reported on Wednesday.

The United States and China have repeatedly clashed over trade policy, advanced technology, and China’s response to the coronavirus, which originated in the central province of Hubei late last year.

Another row between the world’s two superpowers over civil liberties in Hong Kong could prompt a return to risk-off trades that favor dollar gains, declining equities, and rising bond prices.

Further gains in the euro depend on whether policymakers can narrow their differences on how to fund an economic rescue package for the euro zone, traders say.

France and Germany have proposed a 500 billion euro coronavirus recovery fund that would issue grants to help the bloc’s economic recovery from the coronavirus pandemic.

Austria, Sweden, Denmark, and the Netherlands have opposed this plan, calling instead for a loans-based approach.

The European Commission is to present its own proposal for a recovery fund later on Wednesday, which could determine the near-term direction of the euro.

The dollar edged higher on Monday as worries about a standoff between the United States and China over civil liberties in Hong Kong fuelled demand for safe-haven currencies.

The yuan and the Australian and New Zealand dollars fell as risk-aversion hit foreign exchange markets.

Sterling was on the defensive after members of British Prime Minister Boris Johnson’s party called for the resignation of an influential aide for breaking travel restrictions during the coronavirus lockdown.

A senior White House official has said Beijing’s plan to impose a security law on the former British colony of Hong Kong could lead to U.S. sanctions, which could worsen an already tense relationship between the world’s two-largest economies.

“The biggest concern is the tension between the United States and China,” said Takuya Kanda, general manager of research at Gaitame.com Research Institute in Tokyo.

“Things were already bad, and it is likely to get worse because of the Hong Kong security law. This supports risk-off trades, which is positive for the dollar and the yen.”

The dollar edged up to $1.0887 against the euro on Monday, close to its strongest in a week.

The dollar bought 0.9729 Swiss franc, also close to a one-week high.

The greenback held steady at 107.72 yen.

In onshore trade, the yuan eased slightly to 7.1422 per dollar, approaching the lowest in more than seven months.

Trading may be subdued on Monday with financial markets in Singapore, Britain and the United States closed for public holidays.

China’s proposed national security legislation for Hong Kong could lead to U.S. sanctions and threaten the city’s status as a financial hub, White House National Security Adviser Robert O’Brien said on Sunday.

Hong Kong police fired tear gas and water cannons to disperse thousands of people who rallied on Sunday to protest Beijing’s national security law.

Washington and Beijing are also at loggerheads over Chinese companies’ access to advanced technology and criticism of China’s response after the novel coronavirus emerged late last year in Hubei.

The threat of sanctions over Hong Kong risks a repeat of last year’s damaging trade war between the United States and China.

The British pound was little changed at $1.2175. Against the euro, sterling traded at 89.46 pence.

Johnson backed senior adviser Dominic Cummings on Sunday, despite calls from within his Conservative Party for the aide to resign.

Cummings, the architect of the 2016 campaign to leave the EU and widely considered to be Johnson’s most influential strategist, came under pressure after reports he traveled to northern England from London during a nationwide lockdown in March when his wife was ill with COVID-19 symptoms.

The Australian dollar gave up early gains to trade at $0.6528 as risk aversion offset optimism about the country’s emergence from coronavirus lockdowns.

In New South Wales state, which includes the city of Sydney, children returned to school full-time on Monday, allowing many parents to work from their offices.

Australian states are pressing ahead with a three-stage plan to remove most social restrictions imposed by July.

Across the Tasman Sea, the New Zealand dollar drifted lower to $0.6093.

The dollar gained against major peers on Friday as worries about rising diplomatic tensions between the United States and China supported safe-haven demand for the greenback.

Sino-U.S. relations have soured over a broad range of issues, including China’s treatment of the former British colony of Hong Kong and its response to the coronavirus pandemic, which is causing risk aversion to spread.

The fresh geopolitical strains also boosted the safe-haven yen but sent the yuan to a 1-1/2 month low and rattled both the Australian and New Zealand dollars.

“There have been problems between the United States and China for quite a while now,” said Yukio Ishizuki, FX strategist at Daiwa Securities in Tokyo.

“Some very short-term players are changing positions from one day to the next, which makes it difficult to see the trend, but overall the dollar looks to be supported.”

While the new frictions added some pressures to the yuan, the Chinese currency also found some support after policymakers in Beijing unveiled new stimulus measures, as widely expected.

The dollar rose 0.24% to $1.0925 per euro on Friday, following a 0.3% increase in the previous session.

The dollar bought 0.9715 Swiss franc after posting its biggest gain in more than two weeks on Thursday.

Sterling held steady at $1.2216 before data later on Friday expected to show a plunge in British retail sales.

China is set to impose new national security legislation on Hong Kong after last year’s pro-democracy unrest, a Chinese official said on Thursday, risking fresh protests in the city.

U.S. President Donald Trump has warned that Washington would react “very strongly” to the legislation.

There is a risk that Hong Kong could lose some of its favourable U.S. trading terms that have helped it maintain its position as a global financial centre.

The Hong Kong dollar was little changed on Friday near the top end of its narrow 7.75-7.85 band against the greenback. Shares in Hong Kong tumbled more than 5%, highlighting investors’ concerns.

Washington and Beijing are also at loggerheads over Chinese companies’ access to advanced technology and criticism of Beijing’s response after the novel coronavirus emerged late last year in the central Chinese province of Hubei.

The tension has stirred memories of last year’s drawn-out trade war between the two economic superpowers, which roiled global financial markets.

Onshore, the yuan briefly fell to the lowest since April 2 before paring losses to trade at 7.1210 against the dollar.

Chinese Premier Li Keqiang pledged higher infrastructure spending and other measures to support the economy at the National People’s Congress on Friday.

China did not issue a growth target for 2020, the first time since it began publishing such goals in 1990, as the world’s second-largest economy reels from the coronavirus.

The antipodean currencies nursed losses as risk sentiment took a blow.

The Australian dollar fell 0.49% to $0.6535. Across the Tasman Sea, the New Zealand dollar eased to $0.6106.

New Zealand is considering distributing cash directly to households to help the economy recover from the coronavirus pandemic, the country’s finance minister said on Friday.

The idea of direct cash transfers to households, sometimes called helicopter money, is drawing attention as the pandemic inflicts the worst blow to the global economy since the Great Depression in the 1930s.

Elsewhere, the yen edged up to 107.46 per against the greenback. Japan’s currency also rose 0.6% against the Aussie and gained 0.4% against the kiwi due to safe-haven inflows.

The yen did not budge earlier in the Asian session when the Bank of Japan decided the details of a lending scheme for small companies hurt by the pandemic at an emergency meeting on Friday.