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The dollar ticked up slightly on Friday after China’s central bank appeared to have stopped guiding the yuan lower for now, easing concerns that a weaker Chinese currency could derail plans by the US Federal Reserve to raise interest rates.
The dollar traded at 124.50 yen, up slightly from late US levels and extending its recovery from this week’s low of 124.21 yen. For the week, it is up 0.2 per cent.
The euro fetched $1.1141, down slightly from late US levels. Still, it was up 1.6 per cent on the week, as the dollar has been hit by speculation that the US too may not want a strong dollar if China pushes down the yuan.
Yuan midpoint
On Friday, the People’s Bank of China set the yuan midpoint at 6.3990 yuan to the dollar, slightly stronger than Thursday’s levels.
The central bank said on Thursday there was no reason for the yuan to fall further given the country's strong economic fundamentals.
‘Currency war’
Beijing’s moves eased concerns a cheaper yuan could trigger a “currency war’’, or a competition among the world’s biggest economies to cheapen their own currencies to seek a competitive edge.
US interest rate futures prices edged down and US bond yields bounced back as investors repriced higher chances of a Fed rate hike in September. Solid US retail sales data also supported the case for an early rate hike.
Dollar index
The dollar's index against a basket of six major currencies stood at 96.372, off its one-month low of 95.926 hit on Tuesday.
Still, market players are not sure how much more the dollar can gain, assuming the yuan could fall further in future given a slowdown in the Chinese economy.
“The latest concerns triggered by the sudden policy action may be subsiding a tad. But there is no change in the fact that the Chinese economy is slowing,’’ said Masafumi Yamamoto, senior strategist at Monex Securities.
“I think the yuan has become overvalued as other countries tried to cheapen their currencies and it will keep falling, playing catch-up,’’ he added.
While most major currencies saw limited moves, the New Zealand dollar fell after domestic retail sales had the slowest increase in two years, cementing expectations its central bank will cut rates.
The New Zealand dollar traded down 0.5 per cent at $0.6540.
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