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The Chinese yuan plunged to a new 26-month low on Monday. It exchanged hands below the psychologically critical level of 7-per-USD. Moreover, the offshore yuan lost more than 0.35% compared to its onshore peer.

Meanwhile, the U.S. dollar skyrocketed against other major currencies today. The latter were trading within narrow ranges as investors awaited the results of the various central bank meetings this week. The U.S. Federal Reserve’s meeting comes first, and analysts think that the agency will announce another major interest rate hike. Moreover, markets in Tokyo and London closed for public holidays. As a result, Forex trading was quite subdued on Monday.

However, market participants remain on edge due to the uncertainty that still plagues the people. Along with Fed’s decision, the forecasts about the impending deep crisis in Eurozone in the coming winter also weigh on the traders. Consequently, the safe-haven U.S. dollar continues rallying. But stock markets fluctuated today. The Fed might maintain its aggressive tightening path to stop climbing inflation.

John Doyle, the vice president of trading and dealing at Monex USA in Washington, stated that the dollar currently benefits from a sell-off in global equities. He thinks the currency will continue to move according to overall risk sentiment, especially with the agency’s decision pending. However, Doyle doesn’t expect the Fed to hike its rates by 100 basis points this week, even though there’s the potential of such an occurrence. This week, Fed funds futures have priced in a 79% chance of a 75-basis-point rate increase, along with a 21% probability of a 100-basis-point hike.
 

How is the U.S. dollar trading now? 

The dollar index surged forward by 0.4% at 109.98 against the basket of six major currencies on Monday. It exchanged hands near the 20-year peak of 110.79 hit on September 7. This week, various holidays in different countries may thin liquidity, as well as cause sharper price moves. Japanese and Britain markets were off on Monday, the Australian F.X. market will close on Thursday, and the Japanese – on Friday.

On Monday, the greenback gained 0.4%, trading at 143.50 Japanese yen. The USD/JPY pair hovered beneath a strong resistance level at 145. Japanese policymakers continued discussing currency intervention to help the tumbling Yen.

Furthermore, analysts expect the Bank of Japan to announce a massive stimulus at its meeting on Wednesday and Thursday. It will likely try to maintain its ultra-loose policy. Other central banks have already increased rates; as an exception, Japan experienced some struggles regarding its currency. The yen has suffered lately partly due to the BoJ’s decision. However, the central bank no longer describes the inflation in the country as temporary. So, it may hike rates sooner than expected.  

Meanwhile, the euro plummeted by 0.3% against the greenback at $0.9984 on Monday. The British Pound also dropped by 0.4% to $1.1386. The sterling remained near its 37-year lows hit on Friday. At the same time, the New Zealand and Australian dollars tumbled down by 0.8% and 0.5%, respectively. The New Zealand dollar hit its lowest level since May 2020, dropping to US$0.5933. It exchanged hands at US$0.5937 at last.

Moreover, the Canadian dollar collapsed to its lowest level in nearly two years. It traded at C$1.3324 per greenback today. Monex’s Doyle noted that the plunge in oil had supported the dollar against commodity-based currencies like the Canadian dollar.
 

What about the E.M. currencies? 

In Asia, the E.M. currencies ended in the red as the Chinese yuan declined. Equities fell, as well. Malaysia’s ringgit plummeted to a new 24-1/2-year low. Taiwan’s dollar also dropped to its lowest level since September 2019.

Mizuho bank economist Vishnu Varathan noted that the Federal Reserve seems set to dominate the narrative on risk assets. As a result, a mood of caution will likely remain in the markets ahead of the FOMC meeting mid-week. The relentless climb of the greenback and U.S. yields have weighed on riskier Asian assets heavily. As a result, several currencies plunged to multi-year lows on Friday.   

On the other hand, Thailand’s baht soared by 0.3% thanks to the central bank’s announcement. The latter stated last week that it was ready to manage any excessive moves in its currency.

The Indian rupee also surged forward after the country’s central bank promised people to start rate increases to hinder the soaring inflation.

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