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Yuan Outperforms As The Dollar Plunges 10% Against All Major Currencies

US Dollar
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EDITOR NOTE: It’s always interesting to read FX news as it shares similarities with mainstream stock market reports: much ado about short-term fluctuations, often at the expense of the big picture. Sure, the dollar has been hovering steadily for the last week; and yes, the Chinese yuan has been outperforming the greenback. But the big picture is that since May last year, the dollar-to-yuan values had plunged 10%. The dollar index in general--weighed against a larger basket of currencies--had plunged 10% also in the same period. This reflects domestic and global confidence in the dollar...as in, a lot of it gone. While a large majority of the investing public dumps dollars for stocks, international investors have been passing up the dollar for investments elsewhere, like other emerging markets, gold, and tangible assets. Dollar investment may be dwindling, but for those of us who use it regularly as a domestic currency, an even worse problem lay ahead--the decline in purchasing power. Fortunately, we can hedge that, preserving and growing the value of our total wealth by purchasing non-CUSIP gold and silver.

The dollar held at a one-week high on Tuesday as doubts over the speed and size of U.S. stimulus discouraged risk-taking in currency markets, with the Chinese yuan the only notable exception. London trading had a cautious tone after a turbulent Asian session with currencies including the Australian dollar and the euro under selling pressure before this week's Federal Reserve policy meeting.

"FX markets are generally risk-off today with the dollar higher, but the Chinese yuan is among the only currencies in emerging markets holding firm," said Kenneth Broux, a strategist at Societe Generale in London.

Against a basket of other currencies, the dollar rose 0.2% to 90.65, its highest since Jan. 20. It has strengthened 1.6% in three weeks as U.S. Treasury yields rose, after a 6% drop between September and January.

Riskier currencies, including the Australian dollar and the British pound, led losers as some traders unwound large short dollar bets. Short dollar positions had hit their highest in almost 10 years, data last week showed.

The euro was also weighed down by early signals that the economy may not rebound as strongly this year as predicted. Germany's Ifo business climate indicator undershot expectations on Monday and an economic surprise index in Europe is near six-week lows.

The Chinese yuan was the rare outperformer against the dollar, even as a senior policymaker warned of debt risks. China's monetary policy will continue to support economic growth and the central bank will watch debt and non-performing loan risks, central bank Governor Yi Gang said.

STRONGER

U.S. Senate Majority Leader Chuck Schumer said Democrats may try to pass much of President Joe Biden's $1.9 trillion spending package with a majority vote, but it is not clear if they have the numbers to override Republican objections.

Few if any changes are expected to the Fed's policy statement on Wednesday after its two-day meeting and no new economic forecasts are scheduled to be released.

"The U.S. economy is probably somewhat stronger than some of the other major economies," said John Vail, chief global strategist at Nikko Asset Management in Tokyo. "People will start to think the United States will settle down, which in theory could be dollar-supportive."

The euro, which fell on Monday after the Ifo survey showed German business morale slumping, is also trading in a range between support around $1.2050 and resistance at $1.2215. It slipped 0.2% to $1.2126.

Elsewhere, emerging-market currencies remained under pressure, with the Brazilian real and the Mexican peso stabilising after a selloff in the past 48 hours.

Originally posted on Yahoo! Finance

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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