China’s interest rate stabilization impacted U.S. dollar, Yuan
The U.S. dollar experienced a decline during early Monday trading as investors once again speculated that the Federal Reserve (the U.S. Central Bank) would soon reduce interest rates. Additionally, the yuan dropped to its lowest level in a month following the unexpected decision by China’s central bank to stabilize interest rates in the medium term. This move was aimed at supporting China’s struggling economic recovery in the aftermath of the coronavirus pandemic.
As a result, the yuan weakened in China’s domestic trading, reaching a monthly low of 7.1813 against the dollar. In overseas trading, it fell to 7.1906 against the dollar, approaching the one-month low recorded on Friday.
Meanwhile, the British pound fell by 0.1 percent to $1.2730, although it remained close to the two-week high reached last week. The euro, on the other hand, remained near the $1.10 threshold and experienced a 0.13 percent increase in the latest trade, reaching $1.0964. The dollar index declined by 0.1 percent to 102.30 points, following significant fluctuations in the past two sessions.
Based on recent data showing an unexpected decline in the U.S. Producer Price Index (PPI) in December, the Fed is expected to commence interest rate cuts in March. This development led to a decrease in Treasury yields.
Read more: Debate reignited: Will Fitch downgrade impact the U.S. dollar’s global dominance?
Fed’s unprecedented operating losses
In a related report, the Wall Street Journal highlighted that the Fed incurred an operating loss of $114.3 billion last year, marking the largest unprecedented loss in its history. The U.S. newspaper attributed this to the Fed’s extensive efforts to support the U.S. economy in 2020 and 2021, followed by a decision to raise interest rates to combat high inflation, among other factors. The Fed released the unaudited initial results of its 2023 financial statements last Friday.
These losses incurred by the U.S. Central Bank further contribute to the significant deficit in the U.S. government’s budget, necessitating larger auctions of Treasury debt.
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