Dollar Slips As China Relaxes Some COVID Curbs

(CTN NEWS) – The dollar fell on Monday as traders poured into riskier assets following the easing of some COVID-related restrictions in several Chinese cities, fanning prospects of a potential reopening of the second-largest economy in the world.

Following recent, unprecedented protests against the government’s unyielding “dynamic zero-COVID” strategy.

Coronavirus limitations were eased over the weekend in several locations, including financial hub Shanghai and Urumqi in the far west.

“Although they may appear like tiny moves, Christopher Wong, a currency analyst at OCBC in Singapore, said they are nonetheless a clear indication that China is moving cautiously toward openness.”

According to persons familiar with the situation who spoke to Reuters last week,

China will soon announce a nationwide reduction of testing rules and enable positive cases and close contacts to isolate at home under specific circumstances.

The onshore yuan increased by about 1.4% to as high as 6.9507 on Monday morning, its best level since September 13, while the offshore yuan fell below 7.0.

The dollar index, which rates the greenback against the yen and the euro among six other major currencies, was down 0.268% at 104.19, its lowest level since June 28.

The index saw its worst month since 2010 last week, dropping 1.4% and 5%, respectively.

Expectations that the Federal Reserve will slow the pace of interest rate hikes following four straight 75 basis point increases are largely to blame for the recent decline in the dollar’s value.

The U.S. consumer price inflation report, which is expected on December 13—the day before the Fed’s two-day policy meeting ends—will be the subject of investors’ attention.

U.S. consumer confidence at four-month low; house price inflation slows https://t.co/IvbUwj8FiK

— Pat O'Hara, Tax Strategist and Problem Solver (@TAGTAX) November 30, 2022

The U.S. central bank is anticipated to raise interest rates by 50 basis points at the meeting. Fed funds futures traders are now projecting that the benchmark interest rate will reach a top of 4.92% in May.

“As the Fed is still tightening, some prudence is still advised,” according to OCBC’s Wong. The only difference is that they will tighten in modest steps rather than all at once.

The Japanese yen, which had gained 3.5% last week and was still much above its October low of 151.94, declined 0.20% against the US dollar to 134.59 per dollar.

The yen is rising as the negative effects of extended monetary easing policy are being highlighted and as the second term of Bank of Japan governor and political moderate Haruhiko Kuroda comes to an end.

Naoki Tamura, a member of its board, told the Asahi daily that the BOJ should evaluate its monetary policy framework and, depending on the results, adjust the scope of its expansive stimulus program.

“Not only is the Fed slowing down the pace of its policy tightening, but the BOJ may also be beginning to unwind some of its extraordinarily accommodative policies,” according to Wong.

“There is still an opportunity for the dollar/yen to test lower, according to the two factors emanating from both sides of the exchange rate.”

The Bank of Japan should conduct a policy assessment, and the right moment for it could come soon or a little later, according to board member Naoki Tamura. https://t.co/GspQJTFNGq

— The Japan Times (@japantimes) December 3, 2022

After rising 1.3% the previous week, the euro increased by 0.32% to $1.0572. It had previously reached $1.05835, a high of more than five months.

When last traded, sterling stood at $1.2327, up 0.33% on the day, and had risen to $1.23450, its highest level since June 17.

The kiwi increased by 0.31% to $0.643, while the Australian dollar increased by 0.59% to $0.683.

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