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Dollar drops as commodity currencies gain on China strong manufacturing activity

The U.S. dollar dropped on Wednesday, weighed down by firmer commodity currencies that benefited from China's strong manufacturing activity data. Along with the Australian and New Zealand dollars, China's yuan rose after data showed Chinese manufacturing activity expanded at its fastest pace in a decade, smashing expectations.

Amo Sahota, executive director at FX advisory firm Klarity FX from San Francisco: "The market is really responding to some of the other data outside the U.S. Notable today was the outperformance in some commodity currencies. The market is reading into that China PMI data. That was a very strong report and shows China coming back with a vengeance.” reported that another outperformer was the euro, which climbed 0.8% to $1.066 , boosted by the German inflation report.

Goldman warns of pre-election currency turmoil in Turkey
Goldman Sachs has warned of the potential for foreign exchange market instability in the run up to Turkey's elections following years of currency reserve depletion and other costly measures. While not its base case, the Wall Street bank said problems could be triggered if savers and firms became worried that a shift to more orthodox economic policies under a new government would fuel short-term FX market turbulence.

"Given the short-term nature of the instruments, time is unlikely to be on the authorities’ side," Goldman's analysts said. "Hence, we believe there will need to be interim solutions." If problems do take hold the lira would fall, especially given the sharp depletion of Turkey's currency reserves in recent years.


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