U.S. Dollar Drops Amid Risk Appetite

The U.S. dollar fell against its major counterparts in the European session on Thursday amid risk appetite, as investors bet on a steady recovery from the pandemic despite indications of inflationary pressures.

The long term treasury yields were mostly down on expectations for an imminent tapering announcement and the likelihood of an earlier interest rate hike than projected.

Strong U.S. inflation data and hawkish Fed minutes prompted investors to bring forward the expectations for a potential rate hike to September 2022 from December 2022.

The minutes from the Fed's September policy meeting signaled that the central bank could begin reducing asset purchases in either mid-November or mid-December.

Investors reacted to Chinese inflation data showing that factory-gate inflation spiked to the highest level in almost 26 years, boosted by soaring prices of raw materials.

Market participants are awaiting data on U.S. producer price index and weekly jobless claims for more direction.

The greenback eased off to 113.28 against the yen, not far from a 2-day low of 113.21 seen in the Asian session. If the currency falls further, 110 is likely seen as its next support level.

The greenback depreciated to a 4-week low of 0.9194 against the franc, 10-day low of 1.1624 against the euro and near a 3-week low of 1.3734 against the pound, off its early highs of 0.9244, 1.1587 and 1.3653, respectively. The currency may face support around 0.90 against the franc, 1.18 against the euro and 1.39 against the pound.

The greenback reversed from its early highs of 0.7371 against the aussie, 1.2445 against the loonie and 0.6958 against the kiwi and dropped to more than a 5-week low of 0.7420, more than 3-month low of 1.2373 and more than a 2-week low of 0.7031, respectively. The next possible support for the greenback is seen around 0.76 against the aussie, 1.22 against the loonie and 0.72 against the kiwi.

Looking ahead, Canada manufacturing sales for August, U.S. PPI for September and weekly jobless claims for the week ended October 9 are due in the New York session.