On Tuesday, the US dollar was trading flat after China announced another major step for reopening its borders, even as the country records a major spike in COVID-19 cases.
In a move to loosen its rules, the National Health Commission announced on Monday that inbound travelers would no longer be required to undergo quarantine from January 8th onwards.
Simultaneously, regulations were also downgraded by Beijing for managing COVID cases from the leading Category A to Category B, which is significantly lighter.
The reaction
There was a 0.13% drop in the offshore yuan to the announcement, which saw it hit a value of $6.9653 against the dollar.
Market strategists said that the trading range had been very narrow and the dollar had already strengthened against both the yen and euro.
They also added that the greenback could record more gains against the Chinese currency, but investors should still be optimistic about the resolve of Chinese policymakers to fully reopen the economy.
This is due to the fact that despite the major rise in COVID-19 cases in the country, the government has continued to loosen the restrictions that were in place.
The euro recorded gains against the US dollar of 0.13%, as it reached $1.0649.
Other movements
It should be noted that the euro may get a further boost, as China continues to dismantle its zero COVID-19 policy, which had been economically damaging.
The European currency has been climbing higher as well, as a hardline stance has finally been taken by the European Central Bank (ECB) for addressing the inflation, more than investors had expected.
There was also a 0.18% gain in the Aussie against the US dollar, as it reached $0.674 in the year-end trading session that remained thin due to the holiday season.
As for the New Zealand dollar, it ended up losing the gains it had made earlier, as it dropped 0.17% to reach $0.628.
These two currencies often serve the purpose of the Chinese yuan’s liquid proxies. Markets in the UK were closed for a public holiday due to which trading in the British pound remained muted.
Therefore, the sterling was down against the US dollar to trade at $1.2031. The US dollar index that measures the greenback against a basket of its peers was flat at 104.80.
The numbers
On Friday, data was released showing that there had been almost no increase in consumer spending in the US in the month of November, while inflation had come down.
This strengthened expectations that the US Fed could slow down its aggressive interest rate hikes. Market analysts said that investors could expect to make profits next month from the recent rallies in the yen and euro and this could give the dollar a boost in the short term.
There was a 0.35% drop in the Japanese yen against the US dollar to 133.32, even though government bond yields rose to their highest level in more than 7 and a half years after relatively weak demand was seen in an auction.
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