The dollar rose on Monday as protests in China against tough COVID-19 policies prompted traders and investors to abandon riskier assets and push the Chinese yuan down to more than a two-week low against the dollar.
Protests have erupted across China and engulfed several cities following an apartment fire that killed 10 people in Urumqi in the far west of the country. On Sunday evening, hundreds of demonstrators and police clashed in Shanghai.
Traders and investors are now anxiously awaiting how the government in Beijing will respond to protests over the rise in COVID cases.
The offshore yuan slipped to more than two-week lows in Asian trading and last fell about 0.4% to 7.2242 per dollar.
The Australian dollar, as a liquid counterpart to the yuan, fell more than 1% to $0.6681. The New Zealand dollar fell 0.72% to $0.6202.
China’s tough COVID policy has taken a heavy toll on its economy, and the authorities have taken various measures to revive growth. At the end of that week, the People’s Bank of China (PBOC), the country’s central bank, announced that it would cut the reserve requirement ratio (RRR) for banks by 25 basis points (bp) effective December 5.
If RRR reduction is just one monetary policy tool the NBK wants to use, it may not lead to a significant increase in bank lending.
Companies now have weaker retail sales due to more COVID cases and falling home prices.
The euro fell 0.5% to $1.0350 and the pound sterling fell 0.26% to $1.2057.
Recent events in China have halted the US dollar’s fall, which has been falling for several weeks, in hopes that the Federal Reserve will soon slow down the pace of rate hikes.
Against a basket of currencies, the US dollar index rose 0.07% to 106.41, rebounding from its recent three-month low of 105.30.
Fed Chairman Jerome Powell is scheduled to speak on the outlook for the US economy and the labor market at a Brookings Institution event on Wednesday, which could provide more information on the outlook for US monetary policy.
The yen rose about 0.5% to 138.40 per dollar.
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