Chinese Yuan tumbles as protests against Covid lockdowns spread

28 Nov 2022 , 09:49 AM

The yuan fell on Monday as concerned investors flocked to the safe-haven greenback as protests against COVID regulations in China fuelled uncertainty and damaged morale.

Following a fatal fire in Urumqi in the country’s far west, the COVID protests have erupted across China and spread to numerous cities, with hundreds of protesters and police squabbling in Shanghai on Sunday night.

Early Asia trade saw a 0.76% increase in the dollar against the offshore yuan, reaching 7.2456.

The kiwi fell 0.5% to $0.6216, while the Aussie, which is frequently used as a liquid substitute for the yuan, dropped 0.61% to $0.6714.

China’s central bank announced on Friday that it would reduce the reserve requirement ratio (RRR) for banks by 25 basis points (bps), starting on December 5. This move is an effort to support China’s faltering economy, which has struggled under the country’s severe COVID controls.

The sterling was down 0.24% at $1.2060 while the euro dropped 0.25% to $1.0377.

To 139.27 per dollar, the Japanese yen lost about 0.1% of its value.

The recent changes in China have halted the U.S. dollar’s slide, which had been easing over the previous few weeks on expectations that the Federal Reserve will soon decrease its rate hike pace. This expectation was backed up by the Fed’s November meeting minutes, which were issued last week.

The U.S. dollar index was down 0.08% at 106.25 against a basket of currencies, but it was still above its most recent three-month low of 105.30.

However, as investors seized on indications of a shift in the Fed’s aggressive policy stance, it is still on course for a monthly fall of over 5%, the largest in 12 years.

At a Brookings Institution talk on Wednesday, Fed Chair Jerome Powell is scheduled to discuss the prospects for the U.S. economy and the labour market. His remarks are likely to shed further light on the direction of U.S. monetary policy.

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