March 22, 2023

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On Friday, the US dollar was hovering above a one-week low, as compared to some of its major peers. The currency took a breather after experiencing its sharpest decline overnight in a month, as there were still concerns about the fate of the Evergrande Group in China, which is the country’s biggest property developer. The yen also declined to its weakest value since mid-August, with Treasury yields reaching their highest level since the beginning of July. There was a 0.08% increase in the dollar index that brought it to 93.175, which is aimed at measuring the value of the greenback against a basket of six other major currencies.

This was after it had declined by 0.36% to reach its lowest level on Thursday, since September 17th, at a value of 92.977. This ended up wiping out the gains of the greenback for the week and set it up for a decline of 0.09%. The decision of Beijing to inject some cash into their financial system for dealing with the Evergrande crisis on Thursday had a negative impact on the safe-haven dollar. Evergrande had then announced that it would be making its interest payments on a domestic bond. However, some of the bondholders of its offshore bonds disclosed that they hadn’t received their interest payments even after Thursday’s deadline. 

There is additional dollar bond interest that’s due on Evergrande in the coming week. For the first time after August 11th, the dollar climbed by 0.16% against the yen to reach 110.57, as there was an increase of 1.452% in benchmark US Treasury Yields in Tokyo. This level hadn’t been seen since July 2nd. The yields were last trading up at a value of 1.4320%. On Thursday, the Bank of England made hawkish comments that led to a global increase in yields, a day after the US Federal Reserve announced that it would begin cutting back its bond-purchasing program as early as November. It also said that interest rates could go up quicker than expected in the coming year.

According to the BOE, two of their policymakers voted for ending their bond-buying program brought on by the pandemic and markets adjusted their expectations for interest rate hikes to March 2022. Market analysts said that while Evergrande’s fate is still uncertain, markets are no longer very concerned about a systemic impact, which provides flexibility for risks to rally. Consequently, the improved risk sentiment is weighing down on the dollar and it is also discounting the reluctance of markets to align with the Dot Plot of the Fed.

Sterling remained unchanged at $1.3717, after it had experienced gains overnight to reach $1.3570 for the first time after September 20th. The euro mostly remained flat at $1.1738, after it recovered from a nearly one-month low it had hit on Thursday. There was also a 0.2% decline in the risk-sensitive Australian dollar, as it reached $0.7280 after reaching a one-week high of $0.73165. Analysts said that the downside will be contained in the future after Fed’s clear signal of tapering off and a potential rate hike.  

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