Dollar Falls at Chinese Rate Cut

Dollar Falls at Chinese Rate Cut

The greenback’s value, measured by the dollar index against a basket of developed market nations, fell 0.1 per cent to 95.10, bringing its year-to-date losses to 0.5 per cent. It only made a significant gain against the safe-haven yen a day before the Bank of Japan’s usual monetary policy meeting. 

The action occurred on the same day that new data revealed that China’s economy weakened in the fourth quarter, with a rash of Covid-19-related lockdowns and an expanding real estate crisis affecting output and consumption. 

The dollar benefits from tapering because it signals that the Fed moves closer to tighter monetary policy. However, it also means that the central bank will buy fewer debt assets, lowering the amount of money in circulation.

Chinese retail sales fell substantially in December, although industrial production and fixed asset investment performed marginally better than projected. 

More lockdowns this year, combined with evidence of reducing prices, have bolstered expectations of additional relaxation by the PBoC, in stark contrast to much of the rest of the world, where central banks are struggling to keep inflation under control.

Despite strong signals to the contrary from the European Central Bank’s senior management, short-term interest rate futures in Europe suggest that the bank will be obliged to raise its benchmark rate before the end of the year. 

The Russian currency was flat in other parts of the world, but it was still under pressure from tensions in Ukraine. Russian demands for guarantees that Ukraine will never join NATO. The ruble was trading at 76.20 to the dollar, indicating that it usually increases when oil prices are as high as they are now.

The dollar benefits from tapering because it signals that the Fed moves closer to tighter monetary policy. However, it also means that the central bank will buy fewer debt assets, lowering the amount of money in circulation.

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