Macroscope | Why the yuan’s rise against the dollar is far from over
The US dollar’s recent fall from grace with investors has been most visible in its slide against the euro.
And if its weakness persists, perhaps investors will be drawn again to the Chinese yuan. In fact renminbi strength might not solely be a function of greenback weakness. The yuan can currently stand on its own merits.
Given the euro has risen partly on better euro zone economic data, might not the yuan respond similarly to China’s current growth rate?
But before turning to the yuan, there’s the continuing saga of the American currency’s weakness.
Investors’ faith in the dollar-positive characteristics of the reflationary agenda embedded in President Trump’s election platform has ebbed. Congress has failed to pass legislation that would give momentum to this agenda while the White House has given the impression of dysfunctionality.
The greenback has become a forlorn sight on the foreign exchanges and some, such as Japan’s MUFG, can now see new pitfalls for the currency.
“We suspect once the markets return from the summer break in August,” the Japanese bank wrote last week, “the focus will quickly be on a potential crisis relating to the debt ceiling with the Congressional Budget Office now predicting mid-October as the final deadline for raising the ceiling.”