The dollar has fallen from two-decade highs, while the yuan has fallen due to weak Chinese data.
The U.S. dollar was down slightly on Monday after hitting a 20-year peak last week, with the global economy in focus after the Chinese yuan came under pressure following weak data.
Creating a risk-off mood on Monday, China’s retail and factory activity fell sharply in April as extensive COVID-19 lockdowns confined workers and consumers to their homes. . The offshore Chinese yuan was down against the dollar, holding near a September 2020 low of 6.8380 yuan hit last week.
Following the release of China’s data, Bipan Rai, North America head of FX Strategy at CIBC Capital Markets, said trading was focused on macro economic data.
“It’s important to highlight that the risks are towards a stronger dollar and primarily, that’s because if you look at the macro economic climate, the fundamentals don’t look good. From a risk-off perspective that should still support the dollar against most currencies,” Rai said.
But he said the greenback was consolidating after its recent strength and that more range-bound trading sessions were possible: “It makes sense for some period of consolidation before the next leg higher.”
The euro was pulled from its earlier lows after European Central Bank policymaker Francois Villeroy de Galhau said the common currency’s weakness could threaten the ECB’s efforts to steer inflation towards its target.
The Australian dollar (AUDUSD), which is highly exposed to the Chinese economy, reversed course as the day wore on and was last up against the dollar after falling as much as 0.9%.
The dollar index (DXY) was last down 0.11%, after having briefly crossed the 105 level on Friday – its highest level since December 2002, after six successive weeks of gains. Weekly positioning data showed investors built their long dollar bets.
The euro was marginally higher at $1.0414, but not far from last week’s low of $1.0354, its lowest level since early 2017. Analysts see $1.0340 as a crucial level of euro support.
HSBC strategists expect the euro to fall to parity against the dollar in the coming year. “Much weaker growth and much higher inflation leave the ECB facing one of the toughest policy challenges in G10 (central banks),” they said.
Crypto markets, which trade around the clock, had a quiet weekend after turmoil last week driven by TerraUSD, a so-called stablecoin, which broke its dollar peg. An affiliate of the company behind TerraUSD said it had spent the bulk of its reserves trying to defend its dollar peg and would use the remainder to try to compensate some users who had lost out.
Bitcoin was last trading at around $29,647, down more than 5%, after having dropped to $25,400 on Thursday, its lowest mark since December 2020.
Bailey says he’s unhappy about inflation but BoE not to blame
Bank of England Governor Andrew Bailey said on Monday he was “not at all happy” about the surge in inflation in Britain, but added that the central bank could not have done anything differently to prevent it.
“I should emphasise that I do not feel at all – obviously – happy about this,” Bailey told the Treasury Committee in the lower house of parliament. “This is a bad situation to be in.”
Asked if the BoE could have done something different, he said: “I don’t think we could. I don’t think we could foresee a war in Ukraine. Another factor that we’re dealing with at the moment is a further leg of COVID, which is affecting China.”
Bailey has come under criticism from some lawmakers from the ruling Conservative Party, which is feeling the heat for a cost-of-living crisis.
Britain’s consumer price inflation rate hit 7.0% in March and economists polled by Reuters expect it will leap to 9.1% for April, which would be its highest since 1982, when data is published on Wednesday.
Other central banks are also scrambling to cope with a surge in inflation, which they initially described as “transitory” when it began with the post-pandemic reopening of the global economy, before Russia’s invasion of Ukraine pushed energy prices even higher.
Inflation in the United States is running at an annual 8.3%, according to data for April published last week, down a touch from March’s 8.5% which was the biggest rise since 1981.
In the euro zone, inflation hit a record high of 7.5% in April, up from 7.4% in March.
The BoE earlier this month warned that Britain risks a double-whammy of inflation above 10% later this year and possibly a recession. It raised interest rates to their highest since 2009, hiking by quarter of a percentage point to 1%.
Michael Saunders, one of three members of the nine-strong Monetary Policy Committee who voted for a bigger half-point rise this month, said British inflation expectations might have been a bit lower if interest rates had gone up sooner than they did.