Safe-haven dollar hovers around 2-month high on China woes, high rates fear
dollar hovered around a two-month high on Friday, set for a fifth consecutive week of gains in the longest winning streak for 15 months, buoyed by demand for safer assets on worries over China's economy and bets U.S. interest rates will stay high. The People's Bank of China (PBOC) set a much-stronger-than-expected daily fixing, lifting the yuan from a 9-month low hit on Thursday, while sterling fell after British retail sales weakened more than expected in July.
The yuan fell 0.13% against the dollar to 7.3098 in offshore trading, bouncing back from Thursday's nine-month lows, after the PBOC set the official mid-point at 7.2006, more than 1,000 pips stronger than Reuters' estimate. China's economic troubles have deepened, with property developer China Evergrande seeking Chapter 15 protection in a U.S. bankruptcy court, and concerns also growing over default risks in its shadow banking sector.
China's securities regulator unveiled a package of measures aimed at reviving a sinking stock market, but investors said they would do little to boost confidence if the economy remains sluggish. Beijing has so far disappointed with stimulus, while the PBOC cut rates earlier this week in a surprise move that widened the yield gap against the U.S., rendering the yuan even more vulnerable to decline. «Developments in the distressed Chinese financial and property sector are emerging as the most prominent driver for market sentiment,» said Francesco Pesole, FX strategist at ING.
«High yields and growing risks in China suggests the balance of risks is moderately tilted to the upside for the dollar,» he added. The U.S. dollar index, which measures the currency against six peers, edged 0.1% higher at 103.53, after touching a two-month high
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