The dollar fell against a basket of major currencies on Tuesday, on the heels of China's decision to lift its official yuan exchange rate by its highest margin since it abandoned a dollar peg in 2005, while U.S. Senate runoff elections in Georgia were also in focus.
China's central bank set the official yuan midpoint at 6.4760 per dollar before the market opened, up 1% from the previous fix, the biggest adjustment higher since 2005.
In the offshore market, the yuan strengthened as much as 6.4119 for the first time since mid-June 2018. It started the week at 6.494.
The dollar briefly strengthened in a risk-off move on Monday as U.S. stocks dropped, but resumed its downward path after China's announcement, which also helped lift risk currencies. After initially opening lower on Tuesday, U.S. stocks rebounded to further dent the dollar's attractiveness, with the outlook of the Georgia runoffs drawing outsized attention.
A Democratic victory in both races could take control of the Senate away from Republicans, paving the way for further stimulus measures as well as higher corporate taxes and more regulation.
"There is a big divergence of views on this Georgia election, people are kind of scratching their heads as far as what is going to be the outcome here," said Edward Moya, senior market analyst at OANDA in New York. "There is going to be optimism for a dollar rebound, it is inevitable, how long is the question but you will see this over-positioning of dollar bearish bets is going to have to get undone."
The dollar index fell 0.486% to 89.429. The greenback has fallen in the first two sessions of 2020 after a drop of nearly 7% in 2020 to reach levels not seen since April 2018.
The New York Stock Exchange said it no longer intends to de-list three Chinese telecom companies. The surprising reversal of an announcement made only last week added to confusion over a U.S. crackdown on companies said to be linked to China's military.
The Aussie dollar, a barometer of risk appetite that also tends to follow the yuan, was up 1.4% to $0.7772, after climbing to $0.77775, its highest level since April 2018.
The euro was up 0.42% to $1.23 while the Japanese yen strengthened 0.45% versus the greenback at 102.64 per dollar.
Sterling was last trading at $1.363, up 0.45%, having been whipsawed by a surge in infections of a fast-spreading new coronavirus variant in the UK, with the government calling for a third national lockdown in an effort to curb the spread.
It slid 0.73% on Monday, the most since Dec. 10, after earlier rising to $1.3703, a level not seen since May 2018.
Bitcoin traded at $34,077.96, up 6.41%, following a roller-coaster ride that took it to a record high of $34,800 on Sunday and a subsequent tumble to as low as $27,734 the following session.