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Chinese markets are back after nearly a week off and their catch-up rise is boosting stocks. The yen surge is also hitting the US dollar as the 1.2% plunge in USD/CNY On Friday has served to undermine the greenback more broadly with selling reinforced by the renewed optimism of a fiscal stimulus package in the US, as per MUFG Bank.  

Key quotes

“The drop in USD/CNY was in fact the largest daily decline since March 2018 – telling perhaps given back then was the period when the financial markets began to see what was coming – a tariff onslaught from President Trump that saw CNY depreciate sharply.”

“Since China’s markets closed last week, DXY has dropped just 0.4% so there has been a notable catch-up and continued confidence in an improving economy in China and rising expectations of a Biden election victory suggests scope for further catchup from here. Confidence in the economy got a lift today with the Caixin Services index rising more than expected. The index has managed to sustain levels after the rebound from the COVID-19 slump – a feat Europe has been unable to achieve.”

“A 40-minute phone call between Nancy Pelosi and Steve Mnuchin in which the US Treasury Secretary confirmed that President Trump would accept a large fiscal stimulus package has lifted optimism that a deal can still be done. But whether there is a strong unified position amongst Republicans in the Senate remains the question. Four weeks ahead of an election with polls as they are means Trump’s influence on Senate Republicans will not be as great as before. We continue to see risks of disappointment that could hit sentiment and provide temporary support for the dollar.”