Dollar weakens, Yuan soars on Chinese reopening hopes

Dollar weakens, Yuan soars on Chinese reopening hopes
Dollar weakens, Yuan soars on Chinese reopening hopes
© Reuters.

By Peter Nurse

Investing.com – The U.S. dollar weakened in early European trade Monday and the Chinese yuan soared to its highest level since mid-September as relaxation of some of China’s strict COVID-19 curbs boosted risk appetite.

At 03:05 ET (08:05 GMT), the , which tracks the greenback against a basket of six other currencies, fell 0.2% to 104.350, after earlier falling as low as 104.062, its weakest since late June.

More Chinese cities, including financial hub Shanghai, announced an easing of mobility restrictions over the weekend, raising hopes that the country’s authorities will agree to a general relaxation of its strict ‘zero-COVID’ policy in the near future after violent protests against restrictions.

“The timing of a major COVID policy change may be a bit earlier than our baseline expectation of after March 2023,” said analysts at UBS, in a note on Monday.

This has lifted risk appetite, best illustrated by falling 1% to 6.9508, dropping below the closely watched 7-per-dollar level and hitting a two-month low.

This follows on from the yuan appreciating around 1.6% last week, its biggest weekly gain since 2005.

The dollar had already been on the wane, falling 5% in November, its worst month since 2010, as traders positioned for the to ease the pace of its interest rate hikes at its final policy-setting meeting of the year later this month after four consecutive hikes of 75 basis points.

rose 0.2% to 1.0558, having earlier touched a five-month high of 1.05835, ahead of the release of the final s for November, as well as the October Eurozone .

These numbers are unlikely to bring positive economic news, but the European Central Bank is still set to hike when it meets next week with Eurozone still running at five times the central bank’s 2% target.

rose 0.1% to 1.2301, just off the day’s high of 1.2345, which was its highest level since mid-June.

Sterling has been helped of late by a lessening of tensions between the U.K. and the European Union under the new Rishi Sunak government.

European Commission President Ursula von der Leyen said late last week that a workable solution over the Northern Ireland Protocol “is within reach”, with the talks between the two parties marked by a new, more pragmatic spirit.

rose 0.7% to 135.21, while the risk-sensitive climbed 0.2% to 0.6805 ahead of Tuesday’s meeting of the Australian central bank. 

Markets are expecting the Reserve Bank of Australia to keep the at 2.85% after inflation slowed sharply in October, but economists are forecasting another quarter basis point increase before policymakers pause the current rate hike cycle.

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