WASHINGTON- The dollar was flat on Friday hit a fifth consecutive week of gains in its longest winning streak for 15 months, buoyed by demand for safer assets on worries over China’s economy and bets that US interest rates will stay high.
The People’s Bank of China (PBOC) set a much stronger-than-expected daily fixing, lifting the yuan from a 9-month low hit on Thursday.
The yuan weakened against the dollar to 7.3060 in offshore trading after the PBOC set the official mid-point at 7.2006, more than 1,000 pips stronger than Reuters’ estimate.
China’s economic troubles have deepened, with property developer China Evergrande seeking Chapter 15 protection in a US bankruptcy court. Concerns are also growing over default risks in its shadow banking sector.
The US dollar index which measures the currency against six peers, edged 0.01 percent lower at 103.380, after touching a new two-month high of 103.680 earlier in the session.
For the week, it is set to gain 0.5 percent .
“The dollar continues to string together this rally,” said Joe Manimbo, senior market analyst, at Convera. “With the US economy holding up much better than expected, it’s leading the market to push out the timeframe for when the Fed is likely to ease.”
Minutes from the Federal Reserve’s last meeting showed this week that most members of the rate-setting committee continued to see “significant upside risks to inflation”. Strong economic data this week, particularly retail sales, also bolstered the case for additional tightening.
The dollar also saw a boost as investors appeared concerned that Chinese authorities hadn’t done enough to shore up the economy.
The PBOC cut rates earlier this week in a surprise move that widened the yield gap against the US rendering the yuan even more vulnerable to decline. -Reuters
