Yuan dips & Dollar stabilizes: Forex market wilding
The Chinese yuan dipped to a two-month low on Thursday. At the same time, the dollar recovered amid fresh indications of weakness in China’s post-COVID recovery, dimming the outlook for the world economy.
The US dollar had a rough start to the day, falling versus the yen as lower US Treasury yields increased optimism that the Federal Reserve had reached its limit in raising interest rates.
However, with the release of Chinese data revealing that consumer inflation nearly flat-lined last month, which had already caused concern due to an unexpected drop in imports earlier in the week, it reversed those drops. It recovered losses for both the Aussie dollar and the euro.
The onshore yuan dropped to 6.9413 for each dollar, the lowest level since March 10.
The Dollar Declines Due to Lower US Treasury Yields
From Wednesday’s one-year high of $1.2679, the sterling retreated marginally to $1.2616. Later on, Thursday, the Bank of England will announce its policy decision. Therefore, we are expecting a rate increase for the 12th consecutive.
According to Rodrigo Catril, senior FX strategist at National Australia Bank, the market is uncertain about how to interpret the most recent statistics. Besides, it seems to attempt to determine which economy would contract more quickly.
The US CPI was positive and should be dollar-negative, while China’s CPI serves as a reminder of the country’s persisting problems.
After falling as far as 0.37% to 133.895 yen earlier, the dollar was down 0.15% at 134.185 yen.
Market Uncertainty Impacts the Exchange Rates
Following the headline, US CPI dropped below 5% for the first time in two years. In Tokyo trading, the 10-year Treasury yield dropped to 3.425%. Usually, the dollar-yen pair moves in line with the yield. As of last night’s results, there was an 8 basis point decline detected. The most recent change was 3.4364%.
According to Shinichiro Kadota, senior FX strategist at Barclays in Tokyo, yesterday’s CPI report was somewhat reassuring. In addition, he expects that the Fed has ceased raising rates.
Kadota stated that the possibility of the pair dropping to 130 soon could negatively impact the dollar/yen pair. Money market traders have currently estimated a 5% likelihood of a quarter-point hike occurring in June and a 95% probability of a pause. By the end of this year, prices for three-quarter point cutbacks are set.
The Dollar Index Rises, While the Euro Moves Down, and The Australian Dollar Falls
The dollar index, which compares the value of the dollar to a basket of six important rival currencies, rose 0.05% to 101.46.
To maintain its position near the midpoint of its trading range over the previous month, the euro moved down 0.04% to $1.09775.
The Australian dollar fell 0.04% to $0.6776, retreating from its 2-1/2-month high of $0.6818 on Wednesday. The New Zealand kiwi currency, meanwhile, showed greater resiliency, gaining 0.12% to $0.6375 after earlier reaching a nearly three-month high of $0.6384.
After falling as low as $26,842 overnight for the first time since March, the most valuable cryptocurrency, bitcoin, was marginally lower at roughly $27,483.