Dollar dips as yuan fix lifts risk currencies, Georgia elections eyed

Chinese Yuan and U.S. dollar banknotes are seen in this illustration
FILE PHOTO: Chinese Yuan and U.S. dollar banknotes are seen in this illustration taken February 10, 2020. REUTERS/Dado Ruvic/Illustration

January 5, 2021

By Chuck Mikolajczak

NEW YORK (Reuters) – The dollar fell against a basket of major currencies on Tuesday, in the wake of China’s decision to lift its official yuan exchange rate by its highest margin since it abandoned a dollar peg in 2005, while U.S. Senate runoff elections in Georgia were also eyed.

China’s central bank set the official yuan midpoint at 6.4760 per dollar before the market opened, up 1% from the previous fix, the biggest change higher since 2005.

Graphic: China sets yuan mid-point at strongest in 30 months https://fingfx.thomsonreuters.com/gfx/mkt/oakpejlbzvr/Pasted%20image%201609837840876.png

In the offshore market, the yuan strengthened as far as 6.4119 for the first time since mid-June 2018. It started the week at 6.494.

The dollar briefly strengthened in a risk-off move on Monday as U.S. stocks dropped, but resumed their downward trajectory in the wake of China’s announcement, which also helped lift risk currencies. After initially opening lower, U.S. stocks turned higher to further dent the dollar’s attractiveness, with the outlook of the Georgia runoffs in focus.

A Democratic victory in both races could take control of the Senate away from Republicans, paving the way for further stimulus measures as well as higher corporate taxes and more regulation.

“Based off of the track record of Republicans on Election Day, there is still that belief that they are going to at least be able to win one of these races; if that happens, we don’t have to worry about the massive fiscal support” expected from a Democratic-controlled Senate, said Edward Moya, senior market analyst at OANDA in New York.

“Because it has been so heavily in one direction, right now we are at some key support levels for the dollar index that we are probably going to see some choppy trade here.”

The dollar index fell 0.215% to 89.672.

The New York Stock Exchange said it no longer intends to de-list three Chinese telecom companies. The surprising reversal of an announcement made only last week added to confusion over a U.S. crackdown on companies said to be linked to China’s military.

The Aussie dollar , a barometer of risk appetite that also tends to follow the yuan, was up 0.74% at 0.7722, approaching the 2-1/2-year high of .7743 touched on the final day of 2020.

The euro was up 0.19% at $1.2271 while the Japanese yen strengthened 0.32% versus the greenback at 102.80 per dollar.

Sterling was last trading at $1.3592, up 0.17%, having been buffeted by a surge in infections of a fast-spreading new coronavirus variant in the UK, with Prime Minister Boris Johnson ordering another nationwide lockdown.

It slid 0.73% on Monday, the most since Dec. 10, after earlier rising to $1.3703, a level not seen since May 2018.

Bitcoin traded at $32,045.29 following a roller-coaster ride that took it to a record high of $34,800 on Sunday, followed by a tumble to as low as $27,734 the following session.

(Reporting by Chuck Mikolajczak; editing by Jonathan Oatis)