The dollar jumps against the yuan by the most in 3 months after data shows China’s economy is sputtering

  • The dollar was on track for its biggest one-day rise against China’s yuan for three months on Monday.
  • The offshore yuan tumbled after data showed China’s economy sputtered in July and the central bank cut interest rates.
  • Chinese growth is slowing as the economy grapples with a property crisis and a strict zero-COVID policy.

The US dollar was on track for its biggest one-day rise against the yuan for three months on Monday after data showed China’s economy ran into further trouble in July and the central bank cut interest rates.

The greenback was up 0.85% against China’s offshore yuan on Monday morning US time, with one dollar equaling 6.791 yuan. The dollar was up around 0.45% against the onshore yuan, which is more closely controlled by the government, to 6.773 yuan.

China’s currency dropped sharply after a raft of economic data made clear the economy weakened in July.

Industrial output growth slowed from June and came in well below economists’ expectations; retail sales growth also slowed; and youth unemployment neared 20%.

The central bank cut two key interest rates in an effort to stimulate investment, adding to the pressure on the yuan. Lower interest rates make investing in a country look less attractive, reducing demand for the local currency.

“China’s economy is suffering from ongoing COVID lockdowns and a fragile property market,” said Steve Clayton, a fund manager at broker Hargreaves Lansdown.

Chris Turner, global head of markets at Dutch bank ING, said a cooling of fears about the US economy were also boosting the dollar. He pointed to data released on Friday that showed US consumer sentiment had improved.

The dollar has surged in 2022 as the Federal Reserve has rapidly raised interest rates, drawing investors back towards the country. Fears about a global slowdown have also boosted the greenback, which is seen as a safe haven in times of financial market, or economic, stress.

However, the dollar has slipped in recent weeks as signs that inflation might be cooling and worries about the US economy have caused traders to reconsider how high the Fed will push rates.

The dollar index was up 0.58% Monday to 106.24. The index, which measures the dollar against a basket of other currencies, is down roughly 2.5% from its June high but up around 10% for the year.

Turner said the yuan, also called the renminbi, could weaken further. He said the onshore yuan, which traded at around 6.77 to the dollar Monday, could breach 6.80, which would be its lowest level since 2020.

The yuan is one of many currencies to have fallen sharply against the dollar this year, with the offshore iteration having started 2022 at around 6.37. It hit a low of 6.83 in May before the dollar lost some steam.