Dollar Inches Higher As Demand For Safe Haven Increases
The flight toward safe-haven assets such as the US Dollar has increased as we approach the release of the Fed meeting minutes. In addition, the Chinese economic data has also affected the risk sentiment, which is favoring the US Dollar as well.
The Dollar Index, which is a measure of the USD strength against 6 other currencies, jumped 0.1% higher and was trading near the 102.800 level.
Weak Chinese Data Boosted The US Dollar
For now, the conditions are favorable for the US dollar thanks to its status as a safe haven currency. In addition, the data coming out of China shows a decline in the services and manufacturing sectors. This has errored the risk sentiment as the investors brace for the upcoming FOMC meeting minutes.
After the release of the data, the USD/CNY pair jumped 0.3% and was trading near 7.2384. This decline in the CNY and the advance of the USD comes amid a slowdown across China's economic sectors. In fact, the recent data has cast serious doubts about the country's economic recovery.
With that said, the gains in the US Dollar are also limited as the US markets are closed due to the independence day holiday. Furthermore, the investors are also highly cautious as they await what the Fed has to say at the meeting.
Just last month, the FOMC meeting decided not to disturb the interest rate after ten consecutive rate hikes. However, the Fed did warn the markets about two more rate hikes, including the one in July.
For the most part, the FOMC meeting minutes will also likely convey the same message that we are hearing from the FOMC chair and members.
If the Fed introduced a rate hike at the July meeting, it would strengthen the USD and would push the USD/CNY pair higher, indicating CNY weakness. In the meantime, the trade tensions between the US and China will also have a major effect on the US Dollar/Chinese Yuan pair.