Dollar is Down, China Stocks Down Temporarily

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On Friday November 24, the U.S. dollar fell to its lowest level since September 25, with the Euro enjoying its highest level since then. The Dollar index, which monitors changes in the currency against a basket of six major rival currencies, was down 0.1 percent to 93.156. As reported by Reuters, the Euro was up 0.65 percent on the day, posting its third consecutive week of advances, its best run since July. The euro accounts for over 50 percent of the weight in the dollar’s index. The Euro also rose over 1 percent against the Japanese Yen, to 1.3323, its strongest stance since Nov. 16. Gold also got a boost from the falling dollar, but dipped for those seeking a quick buck in profit taking on Friday, closing at $1,289.81 per ounce.

The weakness was partially attributed to the minutes released from the Fed meeting, in which policy makers showed concern inflation would stay below the 2 percent target for longer than expected. It remains to be seen whether the Fed will stick to the three projected interest rate increases in 2018.

As a further catalyst, on Thursday, while U.S. markets were closed, the Euro zone had encouraging news, with surprising growth despite the European Central Bank’s decision last month to scale back its monetary stimulus. “You had good data (this week) from Europe, pretty good news from Germany and nobody guarding the dollar as we’re all eating turkey,” said John Doyle, director of markets at Tempus Inc. Euro zone’s Purchasing Managers’ Index also indicated continued growth. Surveys covering Europe’s services and manufacturing industries surpassed the most optimistic forecasts in Reuter’s polls, with factories relishing the second-best month in the history of the index.

In the meantime, Chinese stocks took their hardest hit in nearly two years, on Wednesday. Chinese Stocks plummeted almost 3 percent, but rebounded ending flat by Friday. As per Market Watch, the retreat was a reflection of concern over China’s bond market, and subsequent liquidity fears. Of late, the 10-year bond’s yield has been meeting three-year highs, at slightly above 4%, producing the drop in price. In a show of confidence, The People’s Bank of China injected merely 20 billion yuan ($3.04 billion) into the market on Friday, in contrast to Thursday’s rather hefty 100 billion yuan. The short term fall in stock prices was no cause for alarm, said Iris Pang, greater China economist at ING, explaining that as fund managers reposition money between bonds and stocks it is to be expected, and may happen again.

By: Hellen Zaboulani

 

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