Strong dollar due to rapid slowdown of Chinese economy

  • The dollar on Monday posted its biggest one-day gain against the Chinese yuan for the first time in three months.
  • The offshore yuan fell after data showed China’s economic turmoil in July and a rate cut by the central bank.
  • China’s growth is slowing as the economy grapples with a property crisis and a draconian zero-coronavirus policy.

The US dollar is on track for its biggest one-day gain against the yuan in three months on Monday after data showed China’s economy was in more trouble in July and the central bank cut rates. board.

The US dollar rose 0.85% against China’s offshore yuan on Monday morning US time, equivalent to 6.791 yuan to the dollar. The dollar rose about 0.45% against the onshore yuan, which is more tightly controlled by the government, to 6.773 yuan.

China’s currency fell sharply after many economic data revealed a weakening economy in July.

Industrial production growth slowed from June, well below economists’ expectations. Retail sales growth also slowed. The youth unemployment rate he approached 20%.

The People’s Bank of China cut two key interest rates to stimulate investment, increasing pressure on the renminbi. Falling interest rates make the country less attractive to invest in and reduce demand for the local currency.

“The Chinese economy is struggling with the ongoing coronavirus lockdown and a weak real estate market,” said Steve Clayton, fund manager at broker Hargreaves Lansdowne.

Chris Turner, global head of markets at Dutch bank ING, said receding concerns about the U.S. economy have also boosted the dollar. He pointed to data released Friday showing that US consumer sentiment has improved.

The dollar surged in 2022 as the Federal Reserve quickly raised interest rates, driving investors back into the country. Fears of a global economic slowdown have also boosted the dollar, which is seen as a safe haven during times of financial market and economic stress.

But the dollar has tumbled in recent weeks as signs of a possible moderation in inflation and concerns about the U.S. economy have caused traders to reconsider how high the Federal Reserve will push interest rates. .

The Dollar Index rose 0.58% to 106.24 on Monday. An index that measures the dollar against a basket of other currencies is down about 2.5% from its June high, but is up about 10% for the year.

Turner said the yuan, also known as the yuan, could depreciate further. He said the onshore yuan, which traded at around $6.77 on Monday, could break above 6.80, the lowest level since 2020.

The renminbi is one of many currencies that has depreciated sharply against the dollar this year, with an offshore repeat starting at around 6.37 in 2022. The dollar reached a low of 6.83 in May before losing momentum.

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