US dollar drops as more bad China news fuels risk aversion
More bad economic data from China adds to doubts Fed will raise interest rates next month
The US dollar hit an almost eight-week low against a basket of major currencies on Friday, after more bad economic data from China added to doubts that the Federal Reserve will be able to raise interest rates next month, while emerging Asian currencies saw another blistering week.
With the latest Chinese numbers showing factory activity shrinking at its fastest pace in six and a half years in August, investors are becoming increasingly concerned that the world’s second-largest economy may be slowing sharply and that global growth may be stalling as a result.
Markets had been reckoning the Fed could raise rates as soon as September, as the US economy continues to grow solidly, but the latest data from China, along with sliding commodity prices and unconvincing US inflation data, has seen most investors take their bets of a September increase off the table.
The euro, which is used as a “funding” currency borrowed in order to invest in riskier but higher-yielding emerging market currencies, hit a two-month high of US$1.1295 as a risk-off mood saw investors buy it back.
The dollar index fell to 95.4, its weakest since June 30.
Regional currencies continued to slide, ignoring the dollar’s broad weakness. Emerging Asian currencies saw weekly losses as China’s stocks kept losing ground, underscoring concerns that unstable financial markets may hit the world’s second-largest economy and global growth further.