The US Dollar (USD) is on track for its fifth consecutive week of gains, marking its longest winning streak in 15 months. This surge in value can be attributed to increased demand for safe-haven assets due to concerns over China’s economy and expectations of higher US interest rates.
The Chinese yuan, despite a strong daily fixing by the People’s Bank of China (PBOC), weakened against the dollar. China’s economic troubles, including the bankruptcy filing of property developer China Evergrande and growing concerns over default risks in its shadow banking sector, have contributed to the dollar’s strength.
The US dollar index, which measures the currency against six major peers, experienced a slight dip on Friday but is set to gain 0.5% for the week. The resilience of the US economy has led market analysts to push back expectations for the Federal Reserve’s easing of monetary policy.
The minutes from the Federal Reserve’s latest meeting revealed that most committee members see significant upside risks to inflation. Additionally, strong economic data, particularly in retail sales, supports the case for further tightening.
Investors are increasingly concerned about China’s economic stability and believe that Chinese authorities have not done enough to address the situation. The recent rate cut by the PBOC, which widened the yield gap with the US, has made the yuan even more vulnerable to decline.
The Japanese yen, typically sought after during times of economic uncertainty, strengthened against the dollar. However, worries over intervention by Japanese authorities due to the yen’s depreciation have kept traders on edge.
The Australian dollar, often viewed as a proxy for China’s economy, rose slightly, while sterling fell following a drop in retail sales in the UK. The euro experienced a minimal increase against the dollar.
The cryptocurrency market also experienced a downward trend, with bitcoin slipping to a fresh two-month low. According to analysts at Grayscale Investments, the sell-off in equities and fixed income has led crossover investors to reduce their portfolio risk, which could explain the decline in crypto prices.