Chinese yuan strengthens sharply against dollar amid expectation of slower rate hike by Fed

 

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The onshore Chinese yuan jumped by 648 basis points against the greenback to the highest in over one week on Monday as the US dollar fell amid heightened expectations that the US Federal Reserve will be less aggressive with monetary policy after the collapse of the Silicon Valley Bank.

The offshore yuan surged by more than 1,000 pips against the dollar to approach 6.83 per dollar, marking the strongest level in more than three weeks.

The yuan rose to 6.9005 per US dollar and other major currencies also rose versus the US counterpart.

The US Dollar Index is sliding more than 0.7% amid growing market expectation that the US Federal Reserve will slow the pace of interest rate hikes after the collapse of Silicon Valley Bank.

Goldman Sachs economists said they no longer expect the Fed to deliver a rate increase next week, even after US authorities moved to contain a crisis spurred by the exodus of depositors from Silicon Valley Bank and Signature Bank.

Traders are now rapidly shifting back to betting on Fed rate cuts for the second half of this year.

The risk of a banking crisis underscores the tension between Fed efforts to tame inflation with concerns that 4.5 percentage points of rate hikes in the space of a year will spark a recession and a rout in riskier assets.