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Central banks’ liquidity measures halt dollar rise


banks had previously forecast the currency to trade at around 6.4 at end-June in their annual outlook published late last year, when the yuan was rising steadily and among the performing emerging market currencies. Photo: Reuters

(ATF) – As unprecedented liquidity provisions by the US Fed, ECB and BOJ reduce money market stress and begin to convince equally stressed investors, the sharp dollar rise of the past several days is coming to a halt.

The dollar index (DXY) dropped by a sharp 1.34% during the Asia trading day and stood at 101.3830 at 5pm HK time.

Correspondingly, the Chinese yuan rose from its morning fixing of 7.1052 to the USD to 7.0682 by late afternoon HK time.

As we have noted on previous days, the Chinese currency has been a model of stability in turbulent Asian and global currency markets and is buttressing its growing significance as an international reserve currency.

Yuan stability, of course, also reflects China’s growing success in taming the coronavirus and executing a return to economic activity by more than 80% of the working population.

For cross-boder bond market investors, currency stability is an essential condition for confidence in the value of their investment. Yuan stability strongly underlines the advisability of increasing exposure to Chinese local currency bonds.

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