Dollar slips as easing COVID curbs in China lift sentiment

The dollar slid across the board on Monday as traders piled into riskier assets after more Chinese cities eased some of their COVID related restrictions, stoking hopes of an eventual reopening of the world’s second biggest economy, Reuters reported.
Financial hub Shanghai and Urumqi in the far west were among the cities that announced an easing of coronavirus curbs over the weekend following recent, unprecedented protests against the government’s uncompromising “dynamic zero-COVID” strategy.
“It may seem like they are baby steps but nonetheless quite a strong sign of China taking calibrated steps in the direction of reopening,” said Christopher Wong, a currency strategist at OCBC in Singapore.
China is soon set to announce a nationwide easing of testing requirements as well as allowing positive cases and close contacts to isolate at home under certain conditions, people familiar with the matter told Reuters last week.
The dollar weakened below 7.0 yuan in offshore trade CNH=, while the onshore yuanCNY=CFXS jumped roughly 1.4% to as high as 6.9507 on Monday morning, its strongest since Sept. 13.
The dollar index =USD, which measures the currency against six major peers including the yen and euro, was down 0.268% at 104.19, its lowest since June 28.
The index fell 1.4% last week, and 5% in November, making for its worst month since 2010. The recent bearishness toward the dollar had largely stemmed from expectations that the Federal Reserve is set to dial down the pace of its interest rate hikes after four consecutive 75 basis points increases.
Investors’ focus will be on U.S. consumer price inflation data due out on Dec. 13, one day before the Fed concludes its two-day policy meeting.
The U.S. central bank is expected to increase policy rates by an additional 50 basis points at the meeting. Fed funds futures traders are now pricing for the Fed’s benchmark rate to peak at 4.92% in May.
Meanwhile, the Japanese yen JPY=EBS weakened 0.20% versus the greenback to 134.59 per dollar, having gained 3.5% last week, far off October’s low of 151.94.