* Graphic: World FX rates tmsnrt.rs/2RBWI5E
By Kevin Buckland
TOKYO, June 2 (Reuters) - The dollar clung to small
overnight gains on Wednesday, edging back from near a five-month
trough versus major peers, as a pick up in U.S. manufacturing
kept bets alive for a quicker normalisation of Federal Reserve
The dollar index, which measures the greenback
against six rivals, hovered just below 90 after dipping to as
low as 89.662 on Tuesday and approaching the lowest since Jan. 7
Likewise, the euro traded at $1.2219 after pulling
back from near a multi-month top overnight, when it climbed to
Investors were also eyeing the trajectory of China's
recently bullish yuan. It was little changed at 6.3823 per
dollar in offshore trading, after retreating from the
three-year high of 6.3526 on Monday as policymakers took steps
to cool its advance including raising banks' FX reserve
Sterling remained lower at $1.41515 after easing
off a three-year high of $1.4250 reached on Tuesday, while the
Canadian dollar was at C$1.20675 per greenback after
rallying to a fresh six-year peak of C$1.2007 overnight as oil
"The direction of the dollar is definitely the focus," said
Shinichiro Kadota, senior currency strategist at Barclays in
The market is split in its view on whether current
inflationary pressures will be transitory, as the Fed maintains,
or will persist long enough to force policymakers to taper
stimulus and raise rates earlier than they have so far
signalled, Kadota said.
"Even if inflation continues to overshoot, I think the Fed
will continue to say it’s temporary, but the market won't know
for sure until fall, so we’re kind of stuck in this
Over the near term, the euro and yuan will be key in
determining if the dollar remains on the back foot or stages a
rebound, he said.
On Tuesday, the Institute for Supply Management (ISM) said
its index of U.S. manufacturing activity rose in May as pent-up
demand amid a reopening economy boosted orders.
The dollar initially traded lower on the report, in which
ISM said manufacturing's growth potential continued to be
hampered by worker absenteeism and temporary shutdowns because
of shortages of parts and labour.
Those employment shortcomings will be front and centre of
investors' minds on Friday with the release of nonfarm payrolls
numbers for May, after April's much-weaker-than-expected reading
sent the dollar index slumping 0.7% on May 7.
The index was mostly flat from Tuesday at 89.919, but still
well off Friday's high of 90.447, when a measure of U.S.
inflation closely watched by the Fed posted its biggest annual
rise since 1992.
"I don't think inflation will last long-term," particularly
with pressure from higher energy prices starting to dissipate,
said Minori Uchida, chief currency analyst at MUFG Bank, who
predicts no rate hikes until after 2024.
"I think the dollar will ease toward the end of this year."
Currency bid prices at 545 GMT
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Euro/Dollar $1.2218 $1.2214 +0.04% +0.00% +1.2227 +1.2213
Dollar/Yen 109.6900 109.4800 +0.19% +6.20% +109.7250 +109.5250
Dollar/Swiss 0.8973 0.8972 +0.04% +1.45% +0.8976 +0.8968
Sterling/Dollar 1.4154 1.4150 +0.01% +3.58% +1.4163 +1.4147
Dollar/Canadian 1.2066 1.2072 -0.04% -5.23% +1.2076 +1.2057
Aussie/Dollar 0.7748 0.7754 -0.07% +0.72% +0.7773 +0.7745
NZ 0.7245 0.7253 -0.12% +0.88% +0.7272 +0.7244
Dollar/Dollar All spots
Tokyo Forex market info from BOJ
(Reporting by Kevin Buckland; Editing by Shri Navaratnam and