The Chinese Yuan Rallied Against the U.S. Dollar Wednesday

 The U.S. dollar tumbled down almost to a two-and-a-half-year low on Wednesday. Progress in fighting the coronavirus pandemic bolstered risk appetite. Furthermore, prospects of more U.S. fiscal stimulus also weakened the greenback.


On the other hand, riskier currencies, including the Chinese yuan and the Australian dollar, led gains against the U.S. currency in London trading after three days of gains.


On Tuesday, U.S. Covid-19 cases surpassed 15 million. Concerned regulators moved a step closer to approving a coronavirus vaccine. At the same time, Britain started inoculating people.


Traders are tracking negotiations over U.S. coronavirus aid as well. On Tuesday, the Trump administration proposed a $916 billion package. Before that congressional Democrats rejected a slimmer plan.


Marios Hadjikyriacos, an investment analyst at XM, stated that there was no real breakthrough in the stimulus talks. However, it does appear that both sides are prepared to pour water in their wine, softening their demands.


The dollar tumbled down by 0.2% to 90.70 against a basket of currencies on Wednesday. The currency reached an April 2018 low point of 90.47 last Friday.


The greenback’s losses have been most severe against the euro in recent weeks. Furthermore, economic activity data suggested Europe is outperforming the United States in recent weeks.


The U.S. dollar plummeted down by 0.2% against the common currency to $1.2126. The dollar is heading for an annual loss of 8% against the euro, its largest since 2017.


The greenback tumbled down to 6.5198 against the Chinese yuan in onshore trading, its lowest level since June 2018. The yuan surged forward by more than 10% from its May lows, strengthened by the softer dollar, as well as steady inflows into Chinese stocks and bonds.


How did the Sterling fare? 


The British currency was volatile in trading. It climbed up by 0.7% at $1.3451 in anticipation of a Wednesday dinner between British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen in Brussels. Investors see this meeting as a last-ditch attempt to salvage a Brexit trade deal.


Meanwhile, German investor sentiment surged forward in December on expectations that vaccines against the Covid-19 will bolster the economic outlook, a new survey showed this week.


Turbulence in the forex markets increased with swap markets, indicating a rising demand for greenbacks heading into the end of the year. Furthermore, three-month euro cross-currency basis swap spreads also widened to minus 32 bps. That is well below a March peak of almost minus 90 bps.

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