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Monday, January 30, 2023
Trading

Dollar low as risk sentiment improves on China curb easing

Dollar low

The dollar slipped under 7.0 yuan in offshore trade, while the onshore yuan jumped roughly 1.4% to as high as 6.9507 on Monday morning, its strongest since Sept. 13

The dollar slid across the board on Monday after a bruising week, weakening to below 7 yuan as sentiment toward riskier, non-dollar assets improved following signs of China easing some of COVID related restrictions.

More Chinese cities, including financial hub Shanghai and Urumqi in the far west, announced an easing of coronavirus curbs over the weekend as China tries to soften its stance on COVID-19 restrictions in the wake of unprecedented protests against the policy.

It may seem like they are baby steps but nonetheless quite a strong sign of China taking calibrated steps in the direction of reopening, said Christopher Wong, a currency strategist at OCBC.

The dollar slipped under 7.0 yuan in offshore trade, while the onshore yuan jumped roughly 1.4% to as high as 6.9507 on Monday morning, its strongest since Sept. 13.

The dollar index, which measures the currency against six major peers including the yen and euro, was down 0.18% at 104.28, its lowest since June 28.

The index fell 1.4% last week, capping off 5% drop for the month of November, its worst month since 2010, due to increasing expectations that the Federal Reserve is set to dial down the pace of its interest rate hikes after four consecutive 75 basis points increases.

Investors’ focus will be on U.S. consumer price inflation data due out on Dec. 13, one day before the Fed concludes its two-day policy meeting.

The U.S. central bank is expected to increase policy rates by an additional 50 basis points at the meeting. Fed funds futures traders are now pricing for the Fed’s benchmark rate to peak at 4.92% in May.

OCBC’s Wong said some degree of caution is still warranted as the Fed is not done tightening. They are still tightening, it’s just that it is going to be in small steps.

Traders appeared to look past stronger-than-anticipated U.S. payrolls report for November on Friday after some of the Fed speakers allayed market concerns.

We move past U.S. payrolls with only a momentary shake for risky markets, said Chris Weston, head of research at Pepperstone, noting that the data supported the ‘soft landing’ argument and is unlikely to change the Fed’s course.

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