The offshore Chinese yuan declined to its lowest level in three weeks on Monday, dragging down other risk and commodity currencies as worries about property developer China Evergrande Group’s solvency spooked financial markets. On the contrary, the U.S. dollar rose on Monday.
Last week, more precisely on Friday, the yuan reached its highest point in three months at 6.4297 on dollar. Its decline on Monday came on the back of warnings from Chinese regulators. They warned that Evergrande’s solvency could trigger broader risks in the country’s financial system if not stabilized.
The world’s most indebted property developer China Evergrande is struggling to pay its many lenders, suppliers, as well as investors. A deadline for China Evergrande to make an interest payment to creditors looms this week.
Yuan’s problems also affected the Australian dollar, New Zealand dollar, and Norwegian dollar, All three of them hit levels at or near three-week lows.
Euro, pound, yen, and dollar
The Japanese yen added 0.2% to 109.72 yer per dollar. Nevertheless, that was not enough to stop the dollar index benefiting from a safety bid.
The British pound, which also correlates with broader risk sentiment, dropped 0.5% to a four-week low of $1.3662.
The greenback rose almost 0.2% against the basket of currencies on the day and its highest in four weeks.
The euro dropped 0.15% on the day to $1.1707 by 10:41 GMT.
The Canadian dollar is also a commodity currency that correlates with risk sentiment. It fell to its lowest point in four weeks at C$1.2815 per dollar.
This week, the main event is the Federal Reserve’s meeting. Expectations for a tapering signal are keeping the greenback bid.
The country’s central bank concludes a two-day meeting on Wednesday. Analysts expect that the Fed will stick with broad plans for tapering in 2021. But they also expect that the Federal Reserve won’t provide details or a timeline for at least a month.
Traders and analysts are also waiting for the Bank of England’s meeting. The central bank is expected to keep its policy settings. However, traders see the potential for gains in the country’s currency if the Bank of England adopts a hawkish tone or more members call for asset-purchase tapering.
Currently, there is no expectation of policy shifts at the resolutely dovish Bank of Japan meeting on Wednesday.