Early European trade saw the dollar index reach a peak of 106.81, recouping all of its deficits from the week before when lesser US inflation statistics caused traders to desert the dollar and seek out riskier assets in turn.
According to Sim Moh Siong, the Bank of Singapore analyst of currencies, although the US GDP outlook is still strong, the broader global situation is still precarious due to worries regarding China. This has dampened risk sentiment and weakened the Australian dollar and several new market risk currencies.
With a run of disappointing economic figures for the previous month, China’s central bank surprisingly reduced a benchmark interest rate on August 15 in an effort to boost credit requirements and sustain the COVID-affected economy.
Today, the Australian dollar dropped to $0.699, falling once more under the key $0.7 mark. Due to Australia and China’s extensive trading relations, traders occasionally use the Australian dollar as a liquid substitute for the Chinese currency.
On yuan exchanged offshore, the U.S. dollar increased to a record of 6.84146. The euro, which dropped to $1.0142, and the British pound, which was last hovering around $1.2026, were both negatively impacted by the return to the shelter of the dollar. The Japanese yen, another safe haven currency, rose 0.3% against the greenback.
The DXY index dropped last week to 104.63, having hit a 20-year high of 109.29 last month as markets reduced their bets on the Federal Reserve continuing its vigorous tightening policy in the face of signals that inflation and economic development are slowing.
Nonetheless, several Federal Reserve decision-makers have recently emphasized the necessity of continuing rate increases.
Given the extremely tight labor market and excessive inflation, Fed officials are forced to come off as stern. In that environment, it is challenging to make a good argument for the dollar.
