By Gina Lee
Investing.com – The dollar was down on Wednesday morning in Asia, but investors still struggled to grasp its direction due to holiday-thinned trading.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.04% to 96.165 by 10:46 PM ET (3:46 AM GMT). The euro edged down 0.14% overnight to $1.1307 and the pound retreated from a five-week high, helping to take the index to 96.165 from as low as 95.958 on Friday.
The dollar was also supported by climbing two-year Treasury yields, which hit a near two-year high on Tuesday.
The USD/JPY pair stabilized at 114.81.
The AUD/USD pair inched down 0.03% to 0.7226 and the NZD/USD pair inched down 0.07% to 0.6807.
The USD/CNY pair inched up 0.05% to 6.3718 as investors continue to digest that People’s Bank of China reiterated that the yuan exchange rate will be more flexible in 2022 and will remain stable overall.
The GBP/USD pair stabilized at 1.3434.
Some investors warned that it is still hard to read the dollar's real direction from its recent moves as many traders are off for the holidays.
“Things are mostly noise right now, though we are probably seeing a soft risk-on/risk-off dynamic going on with stocks down slightly, and the dollar has caught a bid on the inverse of that,” IG Markets analyst Kyle Rodda told Reuters.
However, Rodda remained bullish on the U.S. currency longer term, due to imminent interest rate hikes by the U.S. Federal Reserve and the reduced chance of future lockdowns in the U.S.
Expectations that the Fed will begin hiking interest rates before other major central banks, such as the European Central Bank, boosted the dollar index to its best year in 2021 since 2015.
Meanwhile, Asia Pacific stocks were mostly down, with the S&P 500 closing lower on Tuesday after four consecutive sessions of gains.
Investors are also monitoring the impact of omicron COVID-19 variant with an optimism that the new variant would not dent the global economic recovery too much.
Meanwhile, moves were bigger in cryptocurrencies. Both Bitcoin and Ether lost about 6% on Tuesday, with the assets often seeing bigger moves in low liquidity trading periods such as holidays and weekends.