Dollar slips as traders weigh China outlook; sterling gains

The dollar slipped on Thursday after rising in the previous session, with investors on edge at the end of the year as initial optimism over China's reopening fizzled.

The yen JPY=EBS was last 0.56% higher at 133.72 against the dollar. That followed a 0.73% fall on Wednesday which saw the yen hit a one-week low of 134.50.

The euro EUR=EBS also edged higher, rising 0.25% to $1.064, after falling 0.27% on Wednesday.

Sterling GBP=D3 rose 0.05% to $1.202, after slipping 0.11% the previous day. It climbed as high as $1.206 earlier in the session but gave up some of its gains.

Analysts warned against reading too much into price moves amid low trading volumes as markets head into the new year.

"We very much appear to be in drifting mode, awaiting the turn of the year when traders return and we can get the latest thoughts from policymakers and the most up-to-date data," said Craig Erlam, markets analyst at currency platform Oanda.

Investors are weighing the impact of China's rapid loosening of its strict Covid-19 rules.

Following China's removal of its quarantine rule for inbound travellers from Jan. 8, the United States, Japan, India and other countries said they would require Covid tests for travellers from China.

"Many countries adopting an additional layer of testing for travellers arriving from China reflect hobbled resumption of travel amid China's outbreak," Vishnu Varathan, head of economics and strategy at Mizuho Bank, said.

"This might also fuel fears of new strains of Covid that could once again disrupt the global recovery."

Moh Siong Sim, a currency strategist at Bank of Singapore, said: "Near term, there's still the big question mark as to how soon can we get over this Covid resurgence.

"In the medium term ... I think the growth outlook for China can be steadier and less bumpy, and that in turn means the rest of the world could benefit from that as well," he added.

Against a basket of currencies, the US dollar index =USD fell 0.08% to 104.26, having climbed 0.18% in the previous session.

The Aussie AUD=D3 was last 0.34% lower at $0.672, while the kiwi NZD=D3 was roughly flat at $0.631.

The Chinese offshore yuan CNH=D3 rose 0.33% to 6.977 per dollar.