The Chinese yuan fell on Monday. What about the dollar?

The Chinese yuan slumped against the US dollar on Monday. Beijing announced a modest economic growth target of 5% for 2023. Consequently, the offshore yuan fell as low as 0.8%. It changed hands at 6,949 to the dollar at last. At the same time, the Australian dollar plunged 0.7% to $0.672. Market players often trade the Australian dollar as a liquid proxy for the Chinese currency. Therefore, the yuan’s price fluctuations also influence it.

On Monday, the Japanese yen fell 0.24%. It traded at 136.15 per dollar at last. Investors await the results of the final policy meeting on Friday. That will be the last meeting for Bank of Japan Governor Haruhiko Kuroda. His successor will take office soon.

Despite some major currencies falling, the dollar index was flat on the day, sitting at 104.63. He did manage to rally from a low of 104.34 but didn’t gain much. The index ended last week with the first weekly loss since January.

Traders showed a little more stability today as they anticipated testimony from Federal Reserve Chairman Jerome Powell as well as the upcoming February jobs report due at the end of the week. However, experts warned that this report could affect future actions by the Fed, such as the extent of rate hikes.

The USCB has already increased its rates by 25 basis points in its last two meetings. However, the mood in the markets remained positive as strong data reassured investors that the US economy was still far from recession. This news also contributed to the belief that the Fed could continue with its aggressive tightening policy.

What are the chances of a high Fed rate hike?

According to surveys, the probability that the agency will deliver 25 basis point salary increases at the meeting scheduled for March 22 is 76%, while a 50bp salary increase has a probability of 24%. Investors will closely watch the Fed’s Jerome Powell’s testimony to Congress on Tuesday, Wednesday and the February jobs report to be released on Friday.

Jane Foley, currency strategist at Rabobank, said this week’s payroll figures would be the most influential in determining whether markets should stick with their February stance of sustained higher rates or not. If the economy is slowing, the agency is likely to forego an excessive raise.

Last month, the monthly employment report for January showed rapid job growth, along with sustained wage inflation. Readings for business activity and consumer spending were also positive. This news convinced traders that the Fed would have no reason to cut rates in 2023.

Thanks to that data, the dollar has risen almost 2% since then. Meanwhile, the Japanese yen is down nearly 5% against the dollar at the same time.

In Europe, the common currency was flat at $1.0635 on Monday. Since the beginning of February, the euro has also plunged about 3% against the US dollar. Sterling was also down 0.4% at $1,200.

Weekly futures data on Friday indicated that investors had accumulated the biggest bullish stance on the euro in more than two years. That propelled the single currency to nine-month highs in February. However, the euro is now vulnerable to a sharp selloff.

How are emerging market currencies doing?

Most of the Asian currencies soared today against the US dollar. The Indian rupee and the South Korean won were the biggest gainers in the region. Overall, the rupee rose 0.2%, reaching its highest level since February 2. At the same time, the South Korean won rose 0.5%. The Malaysian ringgit also added 0.5%.

However, the Singapore dollar and Philippine peso were flat on Monday. China’s modest economic growth target weighed on emerging currencies. Investors expected at least a 6% target instead of 5%.

UOB market analysts noted that although Chinese officials suggested the country’s economy was steadily improving after the easing of coronavirus control measures, the government set a disappointing target.

Still, China is moving toward coronavirus endemicity at last. Therefore, you will spend fewer resources on virus containment and testing. Analysts believe that the effectiveness of Beijing’s fiscal and monetary policy will improve over time.

On Monday, most Asian stock markets followed Wall Street, trading in the green. Shares in Manila and Mumbai rose 1.12% and 1.03%, respectively. But in Kuala Lumpur and Jakarta, shares moved insignificantly.