NEW YORK—The dollar fell back sharply as investors turned away from seeing Tuesday's Chinese interest-rate increases as a negative for global growth.
The euro and commodities-based currencies gained strongly as investors pared the positive dollar bets they placed after China's surprise rate rises.
In New York trading, the euro reached back above $1.39, hitting its intraday high. The Australian dollar and its closely connected New Zealand dollar also climbed back, reaching highs for the day.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, fell to an intraday low of 77.446.
In recent trade, the euro was at $1.3895 from $1.3730 from late Tuesday. The dollar was at 81.20 yen from 81.55 yen, while the euro was at 112.93 yen from 112.01 yen. The U.K. pound was at $1.5790 from $1.5701. The dollar was at 0.9620 Swiss franc from 0.9704 franc.
The Dollar Index was at 77.471 from 78.218.
Investors didn't take long to decide that Chinese interest-rate increases demonstrate just how strong China's economy remains, rather than indicating a risk for global growth.
"The decision to raise rates [reflects] the solid outlook for the Chinese economy over the next year," said RBC Capital Market analysts in Toronto.
China's decision came ahead of monthly inflation and gross domestic product figures due Thursday. Data can be expected to be good if China already announced rate hikes, said analysts. The Dow Jones consensus forecast for September CPI is 3.5%, and analysts generally agree that a higher-than-expected number could signal further rate increases.
Meanwhile, a roster of Federal Reserve officials speaking this week continue to draw more investors' attention. Bets remain that the Fed's Federal Open Market Committee will resume asset-purchases, or so-called quantitative easing, when they meet Nov. 2-3.
Philadelphia Federal Reserve Bank President Charles Plosser and Richmond Federal Reserve Bank President Jeffrey Lacker are on tap for Wednesday. Many other Fed speakers have already preceded their speeches though, possibly limiting the impact of their remarks, said analysts.
Separately, "there is a [very good] chance that the [Fed's pre-November meeting] Beige Book report [at 2 p.m. EDT] will confirm everyone's fears that the U.S. recovery has hit a brick wall," spurring on anti-dollar sentiment, said Kathy Lien, director of currency research at GFT Forex in New York.
Early Wednesday, sterling showed little reaction to the U.K. government's spending review Wednesday, as the cuts outlined by Chancellor George Osborne were roughly in line with market expectations.
The pound hovered at around $1.57 against the dollar throughout his speech, which began at 1130 GMT.
The review was seen as key for sterling's direction because if the cuts were viewed as too drastic or rapid, then concerns would rise that the government's fiscal consolidation program could dampen growth. That in turn would boost the possibility that further monetary stimulus in the U.K. may be needed, hurting the pound.
The Canadian dollar regained some losses overnight, as investors scaled back some of the strong U.S. dollar positions they took in the aftermath of the Bank of Canada's gloomy outlook and China's surprise rate increase.
The U.S. dollar recently was at C$1.0282 from C$1.0320 late Tuesday.
