US dollar slips with economy in focus, yuan firms as China eases curbs

THE US dollar slipped on Wednesday (Dec 7) as traders weighed up an uncertain economic outlook, while China’s yuan firmed as authorities loosened some of the country’s zero-Covid rules.

The greenback has dropped in recent weeks on expectations that the Federal Reserve (Fed) might soon pause its interest-rate hikes, and with the euro rising on signs that Europe’s economic downturn may be less bad than previously feared.

Yet upbeat US employment, services and factory data has in recent days called into question the idea of a Fed slowdown, complicating the outlook for the US dollar.

It struggled for direction on Wednesday, with the euro falling earlier in the session before rising 0.28 per cent against the greenback to US$1.05.

The US dollar was up 0.35 per cent against the Japanese yen at 137.48, but down 0.25 per cent against sterling at US$1.216.

Top bankers from JPMorgan Chase, Bank of America and Goldman Sachs said overnight that the banks are bracing for a worsening economy next year as inflation and high interest rates cut into consumer demand.

Some investors believe fears about the global economy will boost the US dollar due to the currency’s perceived safety.

Against a basket of currencies, the US dollar index was down 0.15 per cent to 105.39 on Wednesday, but remained around 10 per cent higher for the year.

“We’ve been forecasting a recession in the US, the UK, the eurozone and Japan,” said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia.

“(That) will provide more support to the US dollar as a safe-haven currency.”

Others think the greenback’s decline – the US dollar index has fallen around 8 per cent since September – will continue as global inflation recedes.

“The base view is that the general trend will be for the US dollar to continue to weaken,” said Michael Quinn, senior trader at Monex Europe.

He said the prospect of European and British energy crises had been “scaring markets into purchasing the US dollar” this year, but now look like they will be less damaging than expected.

In Asia, China’s yuan firmed as the government announced measures that marked a sharp change to its tough zero-Covid policy that has battered its economy and triggered historic protests.

China’s national health authority said asymptomatic Covid-19 cases and those with mild symptoms can self-treat while in quarantine at home.

The announcement was the strongest sign so far that China is preparing its people to live with the disease, though analysts say the path to fully reopening the economy will be long and bumpy.

The onshore yuan rose 0.25 per cent to 6.978 per US dollar.

However, markets were also digesting dismal data which showed China’s exports and imports shrank at their steepest pace in at least 2-1/2 years in November.

“I think the (Covid) measures were overshadowed by the plunge in exports,” said Rob Subbaraman, Asia head of global markets research at Nomura.

“China’s reopening will be bumpy in coming months and economic data will likely get worse before it gets better.”

The Aussie dollar was down 0.1 per cent to US$0.668. The kiwi rose 0.19 per cent to US$0.633. REUTERS