Another Tough Week for the U.S. Dollar

The dollar declined against its rivals on Friday. The greenback is on track for a second consecutive week of decline as news that China Evergrande Group averted a default buoyed appetite for risky assets.

Concerns regarding Evergrande sent investors flocking to the perceived safe-haven currencies like the dollar and government debt. It is not hard to understand investors and their feelings. China Evergrande Group’s liabilities are equal to 2% of the world’s second-largest economy’s gross domestic product. 

The company was on the verge of a default, nonetheless, China Evergrande Group was able to pay interest on a U.S. dollar bond. Undoubtedly, this is good news as the company averted a default. However, uncertainty is set to remain high until there is further clarity on its position and the position of other property companies in China.

Dollar, yen, and pound on Friday

The dollar index dropped 0.1% to 93.61, putting the index on course for a second straight week of falls.

Still, the broader market narrative remained supportive of more U.S. dollar gains as rising bond yields on the back of firmer inflation expectations are expected to lend support to the U.S. currency.

There are other factors as well. Major investors like UBS Wealth Management plan to keep the U.S. dollar as its most preferred currency in its portfolio. Analysts, investors expect that the Fed will be among the leaders to tighten monetary policy ahead of other central banks. 

The Australian dollar stood at $0.7498, off Thursday’s three-month top. The Reserve Bank of Australia’s decision as well as the situation regarding the energy prices affected the Australian dollar. The country’s central bank said on Friday it stepped in to defend its yield target for the first time in eight months. It announced an unscheduled operation to buy A$1 billion ($750 million) of April 2024 government securities.  

 The central bank’s balance sheet almost tripled since the onset of Covid-19, driven by the quantitative easing program. The purpose of this program is to support the country’s economy through the pandemic. The RBA will keep purchasing government bonds at a A$4 billion weekly pace until at least mid-February 2022.

The euro stood at $1.1627. Another major currency, the yen wobbled within sight of its multi-year lows, with one dollar worth 114.01 yen.

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