With China’s economy slowing faster than predicted in the third quarter, the dollar gained ground this week as investors reacted cautiously to the report.
The dollar index, which measures the greenback’s value against a basket of advanced country currencies, was up 0.2 percent at 94.15 by 3 a.m. Eastern Time (0700 GMT), with its strongest gains coming against commodity currencies like the Australian dollar and the Korean won.
A surge of Delta-variant Covid-19 drove China into its most extreme lockdowns since early 2020, according to data from Beijing, which showed GDP growth slowing to to 4.9% in the quarter.
PBC Governor Yi Gang was quoted as saying that the risks of a slowdown were manageable, but the figures sparked new concerns among investors concerned about the ongoing credit crisis in China’s real estate sector, which accounts for the largest share of business investment in the world’s second largest economy, after the United States.
It was noted in an analyst note to clients that despite weaker base effects and a strong start to the year, analysts at Nordea believe China will reach its official growth target of 6 percent in 2018.
But the causes for this slow growth aren’t going away any time soon, according to economist Tuuli Koivu. “There are several downside risks to growth projections for 2022,” he added.
Dollar-yuan exchange rates were almost unchanged at 3 a.m. Eastern Time (ET) from Friday’s closing, suggesting the People’s Bank of China is leaving little or no wiggle room in the currency market at a time of high uncertainty.
Because of Bank of England Governor Andrew Bailey’s most inflation-hawkish remarks yet, the pound was unable to gain significantly in value in Europe due to the strength of the dollar.
To keep inflation expectations in check, Bailey warned a gathering of central bankers over the weekend that energy price increases indicate this year’s jump in inflation would persist longer than projected.
Even though GBP/USD dropped somewhat, the pound rose against the euro and hit a new 21-month high of 1.1866 as the Bank of England’s comments reinforced expectations for a first increase in its main rate before year’s end.
Few major central banks have pledged to avoid tightening monetary policy, thus the euro remains under pressure.
On Monday morning, the EUR/USD rate stood at $1.1578, down from Friday’s close of $1.1600.
Aside from China, economic news this week has been sparse, with the only noteworthy figures coming from the United States: home prices and industrial production.