The U.S. dollar on Monday came close to reaching its lowest level in seven months against other currencies. At the same time, China’s decision to reopen its borders boosted riskier currencies.
The Australian and New Zealand dollar, typically considered more liquid proxies for the Chinese currency, sharply increased in value. At the same time, China’s offshore yuan nearly reached its highest level in five months against the U.S. dollar.
The last three months of 2022 saw the dollar experience its largest quarterly loss in a decade, primarily due to investors’ expectations that the Fed won’t raise interest rates above 5% from its current range of 4.25%-4.50% as inflation and growth slow.
Although more jobs are being created and the economy is growing, overall activity is heading toward a recession. Trading firms sold the dollar against several other currencies as a result.
The U.S. CB expressed satisfaction with nonfarm payrolls and slower wage growth on Friday in its monthly jobs report.
According to a different report from the Institute for Supply Management, service sector activity shrank in December for the first time in two and a half years. Including the collapse during the pandemic in 2020, the ISM’s non-manufacturing PMI registered at 49.6, its lowest level since 2009.
DXY Falls 1.5%
The dollar index, which compares the dollar value to six major currencies, fell 1.15% on Friday as investors shifted their portfolios to riskier assets. It was last trading down 0.1% at 103.62.
Analysts predicted that the tight labor market would prevent the Fed from reducing interest rates anytime soon.
Following a 1.5% increase on Friday, the sterling was back on the move on Monday, rising 0.55% to $1.2159. On the heels of a 1.17% gain on Friday, the euro increased by 0.28% to $1.0674. The outlier among the major currencies, the Japanese yen, fell 0.2% to 132.33 per dollar.
The Australian dollar increased by as much as 1.03% to $0.695, reaching its highest value against the U.S. dollar since August 30. The New Zealand dollar, meanwhile, was last up 0.67% at $0.641, near its highest value in three weeks.
Supporters of former far-right president Jair Bolsonaro have been arrested after storming the country’s congress, the presidential residence, and the supreme court. Still, the Brazilian real had yet to trade elsewhere.
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