The dollar eased and China's yuan gained on Wednesday after China's manufacturing activity expanded at its fastest pace since April 2012, while the euro rose after regional German price data added to inflation worries.
The Australian and New Zealand dollars were also among the beneficiaries of the robust Chinese economic data, which smashed expectations with the official manufacturing purchasing managers' index (PMI) shooting up to 52.6 last month from 50.1 in January.
Similarly, China's non-manufacturing activity grew at a faster pace in February, while the Caixin/S&P Global manufacturing PMI reading for last month likewise surpassed market expectations.
The onshore yuan CNY=CFXS finished the domestic session at 6.8854 per dollar, the strongest close since Feb. 21, while the offshore yuan CNH=D3 jumped 1% to 6.8811 per dollar, set for its largest one-day gain since late November.
"The data confirms expectations that the growth outlook has improved quite significantly in China, so it's positive for risk sentiment," said Niels Christensen, chief analyst at Nordea.
"This has put the dollar on the defensive." The kiwi NZD=D3 surged 0.9% to $0.6242, while the Aussie AUD=D3 gained 0.5% to $0.6762, reversing the slide to a two-month low earlier on Wednesday following soft domestic economic data.
The antipodean currencies are often used as liquid proxies for the yuan.
Meanwhile, data from Germany's most populous state, North Rhine-Westphalia, showed consumer prices rose 8.5% on an annual basis last month, up from 8.3% in January.
Data from up to 16 German states is used to calculate a preliminary inflation figure for Germany. More regional consumer price data is released through the European morning before the pan-German data is published at 1300 GMT.
Data released on Tuesday showed accelerating inflation in France and Spain, two of the euro zone's biggest economies, pushing up rate hike expectations by the European Central Bank (ECB).
The euro was last up 0.7% against the dollar to $1.0650 EUR=EBS .
"The euro is being well supported by the inflation data," Nordea's Christensen said.
"We're looking for a more solid euro area inflation reading tomorrow than we had expected going into this week."
Sterling GBP=D3 jumped 0.5% to $1.2081, having surged 1% at the start of the week after Britain struck a post-Brexit Northern Ireland trade deal with the European Union.
British Prime Minister Rishi Sunak was in Northern Ireland and then met with his own lawmakers on Tuesday to sell the new deal.
Against a basket of currencies, the U.S. dollar index =USD fell 0.6% to 104.36.
The index had risen nearly 3% in February, its first monthly gain after a four-month losing streak, as a slew of strong U.S. economic data in recent weeks raised market expectations that the Federal Reserve has further to go in hiking rates.
Futures pricing
0#FF: currently suggests a peak of around 5.4% in the Fed funds rate by September. FEDWATCH"We see the Fed going to 5.5%, with a growing risk of 6%," said Michael Every, global strategist at Rabobank. "The Fed is hiking. Others can't follow or match. The dollar will soar."
Elsewhere, the dollar fell 0.17% against the Japanese yen JPY=EBS to 136, after having spiked close to 5% against the yen in February, its largest monthly gain since last June.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates https://tmsnrt.rs/2RBWI5E^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
