Dollar hits one-month high

On Monday, the U.S. dollar surged to its highest level in over a month as investors turned to it as a safe haven, driven by concerns surrounding China’s economy. Simultaneously, market participants were watching for potential Japanese government intervention after the yen declined to its lowest point since November.

The dollar index, which gauges the currency against its major counterparts, advanced by 0.26% to reach 103.15 on Monday, marking the highest level since July 7.

At the same time, the British pound weakened by 0.26% to $1.266, while the euro experienced a 0.28% decrease to $1.092.

Experts indicated that investors were gravitating towards the secure U.S. dollar due to apprehensions regarding the global economy’s well-being, particularly China’s. They also highlighted the recent upswing in U.S. bond yields, driven by the continued strength of the country’s economy, which has bolstered the currency. On Monday, the U.S. 10-year Treasury yield hovered around 4.18%, close to the nine-month peak reached last week.

According to a Reuters source, China’s largest private developer, Country Garden, is reportedly seeking a delay in payment on an onshore bond, signifying further strain in the sector. Additionally, over the weekend, two Chinese listed firms reported not receiving payment for maturing investment products from asset manager Zhongrong International Trust Co.

Chris Turner, Head of Markets at ING, attributed the pressure on risk assets to the combination of high U.S. bond yields and a potentially worsening situation in China’s financial sector. He predicted that the dollar would remain robust “unless Chinese authorities can surprise with some powerful stimulus measures.”

Meanwhile, Japan’s yen reached its lowest level since November 10 at 145.36 per dollar, with the dollar gaining 0.29% against the yen. Although the Asian session briefly pushed the yen to around 145.2, the reversal was swift.

Japan’s central bank has adhered to its ultra-loose monetary policy while other global central banks raised interest rates, causing returns in other nations to appear more appealing and thus putting pressure on the yen. Last September, Japan intervened in the currency markets when the dollar exceeded 145 yen, prompting the Ministry of Finance to purchase the yen and bring the pair back to about 140 yen. For the year, the yen has depreciated nearly 10% against the dollar.

The Australian dollar declined to its lowest point since May at $0.6456 and ultimately dropped by 0.33% to $0.648. This currency often reflects investor sentiment towards China.

Additionally, Russia’s ruble slipped below 100 per U.S. dollar on Monday, largely due to the significant reduction in the Russian current account surplus caused by decreased energy export revenue and ongoing substantial government spending related to the Ukraine conflict.

The upcoming week may witness currency movements influenced by economic data. Investors will scrutinise Chinese industrial output and consumer spending data on Tuesday, followed by the U.S. Federal Reserve meeting minutes on Wednesday. Wednesday will also bring British inflation figures. Japanese GDP data is expected on Tuesday, followed by inflation statistics on Friday.

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