The US dollar exchange rate against other world currencies, in particular the euro and the yuan, strengthened to the level of multi-year highs. The reason for the fall of the euro against the dollar lies in the still high inflationary expectations and the slowdown in the leading economies of the eurozone. The yuan is weakening on monetary easing (MP) by Beijing, which is trying to boost economic growth through fiscal stimulus. The trading data testify to the fall of the world's leading currencies against the dollar.
During trading on Tuesday, the euro rate fell to $0.9901, but later corrected and is currently (around 15:50 Moscow time) trading at $0.9927 per euro. The last time the dollar traded against the euro at this level was 20 years ago. The main reason for the depreciation of the euro is another wave of the energy crisis, which puts pressure on production and prices in the European Union. Moreover, the reduction of industrial production in the leading EU economies against the backdrop of too expensive energy resources creates risks of recession and economic slowdown.
The Chinese economy is already facing a slowdown. China's GDP is slowing down the construction sector, which has faced financial problems. To support one of the most important sectors, the Chinese authorities are easing monetary policy: the People's Bank last week lowered the rate on annual loans issued under the medium-term lending program. These actions have led to lower mortgage rates in the country, which should revive the construction sector. At the same time, the market expects that Narbank will continue to reduce the rate, despite the possible financial risks for the Chinese economy, which will create additional pressure on the yuan. During trading on Tuesday, the Chinese currency fell to a two-year low against the US dollar, for which they began to give 6.8454 yuan.
An additional factor in the strengthening of the dollar is the tight monetary policy from the Federal Reserve System (FRS). The rhetoric of regulators, including Fed chief Jerome Powell, suggests that the US authorities intend to curb high inflation, even if it means sacrificing economic growth to do so. At the upcoming meeting in September, the market expects the Fed to raise rates by 0.5-0.75 pp. At the moment, the Fed rate is in the range of 2.75-3% per annum.
The fall of the yuan against the dollar may be bad news for the Russian authorities, who were planning to launch foreign exchange interventions in September with the aim of collapsing the ruble. The government wanted to return to the fiscal rule in order to accumulate reserves, and the authorities planned to buy on the market in the Chinese currency, which is now under pressure. Russia simply has no alternatives to the yuan to store its own reserves. For the US dollar on the Moscow stock exchange on Tuesday gave 59.83 rubles.
