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Unstoppable Dollar: Longest Winning Streak Since 2014, as Yuan Plummet to Decade-low Levels

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US Dollar Falls, But on Pace for Eight Straight Weeks of Gains; Yuan Slumps

The US dollar experienced a slight decline on Friday, following a week of gains driven by better-than-expected US economic data. However, the overall trend remains strong due to stable consumer and labor markets, which have increased the likelihood of another interest rate hike this year. Despite the dip, the greenback is on track for its eighth consecutive week of gains, marking the longest winning streak since 2014.

The Dollar’s Exceptionalism

“The dollar is benefiting from a return of the US exceptionalism theme,” explains Vassili Serebriakov, FX strategist at UBS in New York. This refers to the country’s economic outperformance compared to the rest of the world. The resilience of the US consumer and labor markets has raised questions about whether the Federal Reserve needs to further raise interest rates.

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Yuan Struggles

In contrast, China’s yuan ended its domestic session at its weakest level since 2007. The yuan is facing pressures from capital outflows and a widening yield gap with major economies. This decline in the yuan further supports the strength of the US dollar.

The Longest Winning Streak Since 2014

The US dollar has been on a winning streak for eight consecutive weeks, a feat not seen since 2014. This sustained period of gains reflects the confidence in the US economy and its ability to outperform other global economies. The stable consumer and labor markets have played a significant role in driving this trend.

Stable Consumer and Labor Markets

The stability of the US consumer and labor markets has been a key factor in the dollar’s recent success. The resilience of these sectors has raised doubts about the need for further interest rate hikes by the Federal Reserve. As a result, investors have flocked to the US dollar, driving its value higher.

Capital Outflows and Yield Gap

China’s yuan has been struggling due to capital outflows and a widening yield gap with major economies. These factors have put pressure on the yuan, causing it to weaken against the US dollar. As the yuan continues to decline, the US dollar remains strong, further solidifying its position as a safe haven currency.

Looking Ahead

As the US dollar continues its winning streak, investors will closely monitor economic data and any developments that could impact the currency’s performance. The stability of the US consumer and labor markets will remain crucial in determining the future direction of the dollar. Additionally, any further weakness in the yuan could provide additional support for the greenback.

In conclusion, the US dollar’s recent decline is a minor setback in its overall upward trend. The strength of the US economy, particularly the consumer and labor markets, has positioned the dollar for continued gains. Meanwhile, the struggles of the yuan have further bolstered the dollar’s position. As the dollar heads towards its eighth straight week of gains, investors will be watching closely for any signs of a reversal or further strengthening.

The Dollar’s Strength May Be Waning

The US dollar has been on a winning streak for the past eight weeks, but analysts are suggesting that its strength may be starting to fade. While the dollar index reached a six-month peak recently, its gains have been diminishing each week. This could be a sign that the market is struggling to push the dollar higher.

Market Sentiment

According to experts, the market is already heavily invested in dollars, and the incremental upside potential is becoming smaller. This means that traders are finding it difficult to drive the dollar significantly higher. As a result, the dollar’s recent gains may be losing momentum.

Euro’s Struggles

The euro, the largest component in the currency index, has been experiencing a downward trend for eight consecutive weeks. Although it is down 0.3% for the week, it managed to make a slight recovery of 0.4% in a single day. However, it had previously fallen to a three-month low.

Economic Data

Recent economic data shows that the US services sector gained unexpected strength in August, and jobless claims reached their lowest point since February. In contrast, Germany, the largest economy in Europe, saw a slightly larger-than-expected decline in industrial production in July. These mixed signals could impact the future direction of the dollar.

Rate Hike Speculation

Despite the dollar’s recent performance, there is still a possibility of a rate hike by the Federal Reserve at the November meeting. The market currently assigns a probability of over 40% to this scenario. However, most analysts anticipate that the central bank will maintain interest rates at their current level in the upcoming meeting.

Pound’s Recovery

Sterling managed to bounce back slightly from its three-month low, with a 0.2% increase against the dollar. However, it is still on track for a weekly loss of more than 0.8%. The pound’s performance remains uncertain due to ongoing Brexit concerns and economic uncertainties.

Canadian Dollar’s Strength

The Canadian dollar strengthened against the greenback after Canada reported the creation of 39,900 jobs last month, surpassing the median forecast of 15,000. The unemployment rate also improved, adding to the positive sentiment surrounding the Canadian dollar.

Yuan Hits Lowest Level in Over a Decade

The Chinese yuan has reached its weakest level since December 2007, as the country’s currency continues to depreciate against the US dollar. The onshore yuan opened at 7.3400 per dollar on Friday and touched a low of 7.3510, while its offshore counterpart sank to a 10-month low of 7.3665 per dollar.

Reasons Behind the Yuan’s Decline

China’s currency has been steadily depreciating since February due to a combination of factors. The faltering post-pandemic economic recovery, as well as the widening yield gap with other economies, particularly the United States, have affected capital flows and trade. As a result, the onshore yuan has fallen approximately 6% against the dollar this year, making it one of the worst-performing Asian currencies.

Efforts to Slow the Yuan’s Depreciation

Recognizing the rapid decline of the yuan, Chinese authorities have taken steps to slow its depreciation. They are concerned about the potential impact on the country’s economy and financial stability. By intervening in the foreign exchange market, they aim to stabilize the yuan and prevent further depreciation.

Japanese Yen Also Under Pressure

Aside from the yuan, the Japanese yen is also facing challenges. While the yen steadied at 147.39 per dollar, it remains on the weaker side of the key 145 level that prompted intervention by Japanese authorities last year. Japanese Finance Minister Shunichi Suzuki emphasized that rapid currency moves are undesirable and that authorities are prepared to take action against excessive swings.

Global Impact of Currency Movements

The depreciation of the yuan and the struggles of the yen have broader implications for the global economy. Currency movements can impact trade flows, investment decisions, and overall market sentiment. Investors and policymakers around the world are closely monitoring these developments and assessing their potential consequences.

Conclusion

The Chinese yuan’s decline to its lowest level in over a decade and the challenges faced by the Japanese yen highlight the ongoing volatility in currency markets. As economic conditions continue to evolve, it remains to be seen how these currencies will fare in the coming months. The actions taken by authorities in China and Japan will play a crucial role in shaping the future trajectory of these currencies and their impact on the global economy.

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Tomas Hulman
Tomas Hulman
Tomas was born in Slovakia and went from being an untradeable computer scientist to first a fuel trader and later an algo trader who created strategies for automated stock trading. Now he is working with two eco-oriented projects and grinding his teeth for a big project in the media industry. You'll be hearing more from him...

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