The Chinese yuan fell on Monday. What about the dollar? 

The Chinese yuan plummeted against the U.S. dollar on Monday. Beijing announced a modest 5% economic growth target for 2023. Consequently, the offshore yuan dropped by as much as 0.8%. It exchanged hands at 6.949 per dollar at last. At the same time, the Australian dollar plunged by 0.7% to $0.672. Market players often trade the Aussie as a liquid proxy for the Chinese currency. Thus, the yuan’s price fluctuations influence it, as well.

On Monday, the Japanese yen declined by 0.24%. It traded at 136.15 per dollar at last. Investors are waiting for the results of the final policy meeting on Friday. That will be the last meeting for Bank of Japan Governor Haruhiko Kuroda. His successor will take the post soon.

Despite that decline of some major currencies, the dollar index remained flat on the day, standing at 104.63. It managed to recover from a low of 104.34 but didn’t gain much. The index ended last week with the first weekly loss since January.

Today, traders displayed a bit more stability as they anticipated Federal Reserve Chair Jerome Powell’s testimony, as well as the upcoming February jobs, report due to be released at the end of the week. Nevertheless, experts cautioned that this report could affect the Fed’s future actions, such as the extent of rate hikes.

The USCB has already increased its rates by 25 basis points at its last two meetings. The mood on the markets remained positive, though, as strong data assured investors that the United States economy was still far from recession. This news also contributed belief that the Fed might continue with its aggressive tightening policy.

What are the chances of a high rate increase from the Fed?

According to polls, the probability of the agency delivering 25 basis point wage increases at the meeting scheduled for March 22nd stands at 76%, while a 50-bps wage hike has a 24% chance. Investors will be closely watching Fed Jerome Powell’s testimony to Congress on Tuesday, Wednesday and the February jobs report that is due to be published on Friday.

Jane Foley, a currency strategist from Rabobank, remarked that this week’s payroll figures would be the most influential in determining whether the markets should maintain their February stance of sustained higher rates or not. If the economy is decelerating, the agency is likely to forgo an excessive increase.

Last month, the monthly employment report for January showed rapid job growth, along with sustained wage inflation. Business activity and consumer spending readings were also positive. This news convinced traders that the Fed wouldn’t have reason to cut rates in 2023.

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Thanks to such data, the greenback has rallied by almost 2% since then. Meanwhile, the Japanese yen has shaved off nearly 5% against the dollar at the same time.

In Europe, the common currency remained flat at $1.0635 on Monday. Since early February, the euro has also tumbled by approximately 3% against the U.S. dollar. The British pound declined by 0.4% at $1.200, as well.

Friday’s weekly futures data indicated that investors had accumulated the largest bullish stance on the euro in over two years. That bolstered the single currency to nine-month peaks in February. However, now the euro is vulnerable in the face of a sharp sell-off.

How are the EM currencies faring?

Most Asian currencies soared today against the U.S. dollar. The Indian rupee and the South Korean won gained the most in the region. Overall, the rupee jumped by 0.2%, hitting its highest level since February 2. At the same time, the S. Korean won surged forward by 0.5%. Malaysian ringgit also added 0.5%.

However, the Singapore dollar and Philippine peso traded flat on Monday. China’s modest economic growth target influenced emerging currencies. Investors expected at least a 6% target instead of delivering 5%.

Market analysts at UOB noted that even though Chinese officials were suggesting that the country’s economy was steadily improving after the relaxation of coronavirus control measures, the government set an underwhelming target.

Still, China is moving to coronavirus endemicity at last. Thus, it will spend fewer resources on virus containment and testing. Analysts believe Beijing’s fiscal and monetary policy’s effectiveness will improve over time.

On Monday, most stock markets in Asia tracked Wall Street, trading in the green. Shares in Manila and Mumbai rallied by 1.12% and 1.03%, respectively. But in Kuala Lumpur and Jakarta, stocks moved insignificantly.

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