US Dollar Index Experiences Its Worst Drop In 2 Years On Rumors Of China's Reopening
On Friday, the US Dollar Index shed 1.3% of its value on rumors that China's strict zero-COVID rules will be lifted or eased down. According to available data, the US Dollar index didn't see a slide like this since March 2020, which shows the importance of China in today's economy.
If we look at the reason behind this decline in USD, it can be traced back to the conference held by Citigroup. At that conference, Zeng Guang (a former Chinese scientist) said that the policies related to disease would undergo a significant change. Considering how he used to work at the Center for Disease Control & Prevention (China), the markets took his comments seriously.
As a result of the comments made by Zeng Guang, the Chinese stocks listed in the USA and Hong Kong surged higher. Similarly, Yuan (Chinese currency) also gained 1.6% against the USD and closed around 7.185.
China Continues Its Accommodative Policy
Since the start of 2022, the USD has gained more than 16% due to the rate hikes by the Federal Reserve. On the other hand, China continues to maintain its accommodative policy despite the bearish pressure on the Yuan currency.
And if we look at the Yuan's performance, it is currently at a 15-year low against the USD. So despite some short-term gains against the USD, the overall performance of the Yuan is very weak. But this also leads us to China's policy of keeping the Yuan weak against the USD for trade purposes. That's why President Trump also accused China of deliberately keeping the Yuan weak to gain the upper hand in the trade.
The People's Bank of China also made comments about the Yuan currency. According to the Bank's governor, the Yuan will remain balanced and stable.
If we look around, other currencies, such as Japan, are actually making interventions in the market to prop up their currency. Will we see a similar move made by the People's Bank of China? To get an answer to that question, we will have to wait a few more months!