Dollar Weekly Loss PBOC Yuan: For the first time in six weeks, the dollar will fall against key currencies. An upcoming job report could affect the Federal Reserve’s policies. The dollar sank to its lowest level in a week against the yen due to weak economic data and U.S. Treasury yields.
Still, the dollar has gained slightly against the euro and British pound. Following somewhat dovish comments from the European Central Bank and Bank of England, these rises set the tone for this month’s crucial policy meetings.
Countercyclically, the Chinese yuan has strengthened. The People’s Bank of China’s first annual foreign exchange reserve reduction prompted this defense.
The complicated U.S. Dollar Index compares the dollar to six major currencies, including the yen, euro, and pound. Financial markets actively monitor it. The measure is 103.61, down 0.12% as of Friday. This decrease brings the week’s total decline to 0.53%, although the index’s overall performance is important. The index rose 1.7% in August, its highest advance in three months.
Forecasters and market analysts using predictive algorithms like the CME Group’s FedWatch forecast a 12% Federal Reserve rate hike on September 20. Last week, the odds were 18%, so this is a big drop. This significant change follows a slew of negative news, especially in the job and inflation sectors, making traders more cautious.
Westpac senior currency specialist Sean Callow is negative about the dollar’s performance. He thinks the dollar’s turnaround is over, with inconsistent reactions to “secondary data points”. This susceptibility increases the likelihood of a substantial fall, especially if non-farm payrolls are modest.
Also Read: Euro Dollar Fed ECB Outlook: Market Anticipation Grows for Central Bank Moves
Not all market watchers are bearish. Experienced TraderX analyst Michael Brown thinks financial uncertainty will boost the dollar. “The economy’s existential instability is a shield; it’s hard to bet against the dollar in these uncertain times.”
How people talk about Treasury rates worsens. This week, two-year Treasury rates declined 20 basis points to 4.86%, making them vulnerable to interest rate changes. This is the biggest drop since mid-March. It dropped the dollar’s value against the yen by 0.2%, losing 0.65% weekly.
In Europe, ECB board member Isabel Schnabel and vice president Luis de Guindos have made nuanced statements. Schnabel warned that the eurozone’s economy is falling quicker than projected. De Guindos has recently hinted that the central bank may stop raising interest rates, complicating global financial politics.
The Chinese yuan reached 7.2392 per dollar in foreign trade, its highest level since August 11, complicating matters. Starting September 15, the People’s Bank of China will lower the foreign exchange reserve requirement ratio by two percentage points, aiding this trend. This strengthens the yuan, which has been weak for 11 months.
Non-farm payroll numbers, central bank posturing, and geopolitical concerns might affect the U.S. dollar in the coming months. The situation changes, so market participants must be vigilant.
Our Reader’s Queries
Why the Chinese yuan is weakening against the dollar?
The Chinese currency has been under pressure against the US dollar due to the widening yield differentials with other major economies. However, the newspaper commentary emphasized that the yuan exchange rate is ultimately determined by economic fundamentals in the long run.
How does PBOC fix yuan?
The exchange rate in China is determined by the People’s Bank of China (PBOC), which sets an official midpoint rate each morning. This rate is allowed to fluctuate by up to 2% in either direction, giving the market some flexibility in determining the exchange rate.
Why is China dumping the dollar?
In a bold move, China’s Central Bank sold off the US dollar in the currency market for three consecutive days this December. This was in response to Moody’s negative rating on the Yuan, and state-run banks joined in by selling off US dollars in the spot foreign exchange. The move was seen as a retaliatory measure by China, and it remains to be seen how this will impact the global currency market in the long run.
Why is the yuan depreciating?
The depreciation of the yuan can be attributed to various factors. One of them is the below-par growth rate. Additionally, the People’s Bank of China has been reducing rates while the U.S. Federal Reserve has been increasing them, which is another contributing factor.