Dollar Stumbles as China’s Recovery Boosts Asian Currencies

The U.S. dollar maintained its position near an 11-month high on Wednesday, despite facing some pressure. China’s resurging economy triggered optimism, propelling Asian currencies and commodities upward. Yet, the greenback stood its ground, bolstered by rising U.S. yields driven by robust retail sales data.

This comes as China’s GDP surpassed expectations, surging by 1.3% in the third quarter, outperforming the projected 1%. This acceleration from the previous quarter’s 0.5% growth signaled a strong rebound for the world’s second-largest economy. Simultaneously, industrial output increased and unemployment rates fell.

China’s positive economic news immediately impacted Asian currencies. The yuan soared to a one-week high of 7.2988 against the dollar before settling at 7.3140. The Australian dollar, sensitive to China’s performance, gained 0.44% to reach $0.6393, while the New Zealand dollar rose 0.39% to $0.5918.

Dollar Index on a Slight Descent

The dollar index, measuring the greenback against six major peers, witnessed a slight descent, reaching 106.01 over three days. Despite this dip, it still remains below its peak of 107.348 achieved last week, the highest level since November 2022.

The U.S. dollar’s resilience is rooted in the strong U.S. economy, which shows no signs of slowing down in the face of the pandemic. Recent data revealed a significant 1.6% increase in U.S. retail sales for September, surpassing expectations and driving U.S. Treasury yields higher.

The Japanese yen, influenced by U.S. Treasury yields, experienced fluctuations. Despite gaining against the dollar initially, reaching 148.73, it has since edged closer to the critical 150 mark, currently at 149.82. Japan’s central bank’s ultra-loose monetary policy, maintaining bond yields near zero, continues to weigh on the yen.

Future Prospects Hinge on Trade Talks and Geopolitical Tensions

The future outlook of the dollar rests on factors like the resumption of U.S.-China trade talks and geopolitical tensions in the Middle East. Recent events, such as the Gaza hospital explosion, have heightened concerns about the potential for a broader conflict.

 

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