U.S. Dollar Plunged Low on Monday. What About the Euro?

The U.S. dollar traded in the red today, dropping near its lowest point in seven months versus the other major currencies. Fresh data hinted that the U.S. Federal Reserve might slow the pace of its aggressive rate increases. Moreover, China continues to reopen its borders. This news strengthened risk-on currencies while sending the greenback lower.

In the last three months of 2022, the U.S. dollar suffered its biggest quarterly loss in twelve years. It was mainly due to speculation that the Federal Reserve wouldn’t hike its interest rates beyond 5%. Inflation also slowed, supporting such forecasts.

However, on Friday, two separate reports showed that the U.S. economy is growing and creating more jobs. Despite that, overall activity seems to be heading into recession territory. According to the monthly employment report, the worker’s number registering to receive non-farm payrolls increased, and wage growth also slowed.

The Institute for Supply Management also reported that in December, activity in the service sector shrunk for the first time in 2-1/2 years. CMC chief markets strategist Michael Hewson noted that U.S. CPI numbers for December are due this week. They will be the next waypoint for speculation as to where the terminal rate will end up. Investors expect further slowdown in the pace of price rises, but the main focus will be on core prices.

The dollar index plummeted by 0.2% at 103.54 against the basket of six major currencies today after plunging by 1.15% on Friday. The Fed hiked interest rates by 50 basis points in December after delivering four straight 75-basis-point hikes in 2022. The agency might keep interest rates higher for longer to hinder inflation.

How Is the Chinese Yuan Faring?

On Monday, the Chinese offshore yuan skyrocketed to its highest level in five months versus the greenback. China is easing much of its strict zero-COVID policy rules. Traders hope that will bring about a swift economic recovery. Thanks to such optimism, the offshore yuan gained. At the same time, the Australian and New Zealand dollars surged forward.

Furthermore, the British Pound jumped by 0.42% to $1.2144, adding to Friday’s 1.5% surge. On the other hand, the euro gained 0.4%, exchanging hands at $1.0687. The common currency also soared by 1.17% on Friday.

Unlike other major currencies, the Japanese yen ended in the red. It declined by 0.1% to 132.20 per USD today. The Australian dollar climbed up by as much as 1.03% to $0.695, hitting its highest level against the greenback since August 30. The New Zealand dollar also jumped by 0.51% at $0.638, trading near its highest level in three weeks.

What about the EM currencies? 

South Korea’s won and Thailand’s baht gained the most in Asia today. The reopening of China’s borders and hopes of smaller rate hikes from the Fed supported the emerging currencies. China is a top trading partner in the region.

The Thai stocks and baht rallied by 1%, both hitting their highest levels since April 2022. The currency has jumped by 3.4% since the start of this year. Thus far, it has been the top performer among EM peers.

Analysts at OCBC noted that tourist receipts from China in Thailand accounted for more than 3% of the latter’s GDP in 2019. That’s the highest in Southeast Asia. Considering these numbers, they expect Thailand to benefit the most from China’s reopening.

Meanwhile, China is preparing to move on to a new phase in its battle against coronavirus. Beijing has stopped pandemic border controls recently. After this news, the yuan skyrocketed to an almost five-month high against the greenback.

Traders are waiting for the U.S. consumer price index data, which is due on Thursday. Khoon Goh, the head of Asia research at ANZ, noted that the current risk-on rally would likely continue if the CPI numbers come in below expectations.

Overall, the South Korean won soared by more than 2% on Monday, hitting its highest point since early June. The Philippines’ peso and Malaysia’s ringgit also added 0.7% each. Besides, major regional stock indexes traded in the green. Equities in New Delhi and Manila climbed up by as much as 1.6% and 1.5%, respectively.

Brazil’s financial markets experienced more volatility recently. The Brazilian real was among the top-performing emerging currencies in 2022, but it has yet to trade today.


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