Dollar Weakens as Chinese Yuan Strengthens
The U.S. dollar weakened on Monday amid a strong performance by the Chinese yuan, which reached a 3.5-year high. The dollar index (DX-Y.NYB) fell -0.16% for the day, with losses limited due to rising crude oil prices and higher Treasury note yields that support inflation expectations and interest rate differentials in favor of the dollar. The Chinese yuan's strength was driven by mixed economic data from China: manufacturing PMI rose above expectations while non-manufacturing PMI remained flat. Meanwhile, Fed Chair Warsh’s comments increased market odds for a September FOMC rate hike to 63%, up sharply from earlier in the week. In Europe, the euro gained ground against the dollar as German inflation data came in weaker than expected and crude oil prices climbed. The yen also rose slightly due to stronger-than-expected industrial production and retail sales figures out of Japan. However, gains were capped by rising energy costs and weak interest rate differentials between Japanese and U.S. rates.
Topics: dollar Fed policy inflation expectations oil prices yuan