In terms of the US dollar, the yuan dropped to 6.8612, nearly hitting a two-year low. With several COVID lockdowns in 2022, concerns of impending power outages in Shanghai, the industrial powerhouse, caused the yuan to fall as investors worried about further disruptions to manufacturing activities.
A strong heatwave is currently affecting the nation, drying up many of its streams and rivers and affecting areas in which hydroelectric power is a highly reliant energy source. A power shortage the week before forced the closure of Toyota Motors and Contemporary Amperex Technology Co. operations in Sichuan.
Other large cities, like Beijing and Chongqing, have also received announcements from the government regarding energy-saving initiatives. However, the power constraint seems primarily seasonal and may get better as summer ends.
Nevertheless, the power shortage is taking place at a point when the Chinese economy has been suffering from shutdowns caused by COVID. A comeback may be halted by additional challenges for the industrial sector, which is currently experiencing a decline.
When Neel Kashkari, the Chair of the Minneapolis Fed, stated the central bank is expected to resume tightening policy at a fast rate until inflation is controlled, most other Asian currencies fell today, while the dollar pared previous losses.
The Japanese yen, Taiwan dollar, and the Singapore dollar all had declines of 0.1% to 0.2%, where the first percentage refers to the former and the second to the two bottom currencies accordingly.
Following Kashkari’s remarks, the US dollar index (DXY) increased, recovering some of the losses incurred yesterday. The dollar had taken a hit in the previous session due to several negative economic figures.
Futures for the dollar index also increased marginally. The Federal Reserve is expected to maintain its schedule of interest rate increases in 2022, as Kashkari’s remarks reaffirm the hawkish positions of numerous other Fed members.
Once again, the attention is on Fed Chairman Jerome Powell, who will speak this Friday at the Jackson Hole Forum and is anticipated to give more hints about the tightening of monetary policy strategy that the Federal Reserve intends to undertake.