Dollar Declines Against Major Currencies Amidst Economic Concerns

On Wednesday, the US dollar declined against most major concerns in light of worries that the US economy could be driven into a recession because of rising interest rates.

Meanwhile, the Chinese yuan got a good boost due to the loosening of COVID-19 curbs in the country.

There was also a decline in the Peruvian sol on Wednesday, as the ongoing impeachment trial saw the Congress vote in favor of ousting the President, Pedro Castillo.

There was a more than 2% drop in the value of sol against the US dollar, at its lowest in the trading session.

Monetary policy tightening

Markets had been anticipating that the US Federal Reserve would slow down its monetary tightening pace, but the stronger-than-expected services, employment, and factory data shows that it is unlikely.

This has only added uncertainty regarding the policy of the Fed and it is expected to increase interest rates again in its meeting in the next week.

There was a 0.4% decline in the US dollar index, which measures the value of the currency against a basket of its peers.

A number of US bank executives are gearing up for a decline next year in the US economy. These include Brian Moynihan, the CEO of the Bank of America.

Speaking at a financial conference conducted by Goldman Sachs, he said that their research indicates the first half of 2023 will see negative growth in the economy, even if it will be mild.

Dollar movements

According to experts, some believe that the Fed might decide to hit a pause on its tightening over concerns of a recession. This has resulted in a weakening of the US dollar.

The last year has seen the dollar strengthen and this is primarily due to the increase in interest rates. If the Fed hits pause, it would be bad news for the greenback.

There was a 0.3% rise in the euro against the dollar, as it reached $1.0507. Recent signs indicate that the economic downturn in Europe might be less severe than expected, which has given the euro a boost.

There was a 0.5% drop in the US dollar against the Japanese yen. However, it remained unchanged against the Canadian dollar.

Other details

The Bank of Canada announced an interest rate increase of half a percentage point, which pushed up the benchmark overnight interest rate to 4.25%.

This is the highest interest rate seen in 15 years, but the Bank of Canada issued guidance that it was close to ending its tightening cycle.

The Chinese yuan firmed in Asia, as the government eased some of the measures that it had implemented as part of its strict zero-COVID policy.

The policy has taken a toll on the Chinese economy and resulted in protests throughout the country, thereby forcing the government to change its stance.

The national health authority in the country permitted people who have mild symptoms or are asymptomatic to quarantine at home and self-treat.

This is the strongest indication that the country is gearing up to live with the disease, but market analysts said that it will be a bumpy and long road for the full opening of the economy.

There was a 0.3% decline in the US dollar against the Chinese yuan. As far as the crypto market is concerned, bitcoin also lost 1.5%.