Demand for the Chinese Yuan Is Growing due to The Pandemic

Ding Zhijie, head of a research centre at the State Administration of Foreign Exchange, said the Chinese yuan’s importance in global trade and investment would grow since the coronavirus pandemic seems to diminish the attractiveness of the US dollar in the international monetary system.

He said yuan-denominated assets now have clear advantages over assets denominated in other currencies. The depreciation cycle of the yuan since the summer of 2015 did not lead to any financial crisis in China. It showed that the yuan is not a typical currency of developing countries but has an international currency's basic characteristics.

Capital Economics economists expect US inflation to grow.

The pandemic has increased the likelihood that the US will eventually experience a period of high inflation, mainly because the Fed will be less committed to ensuring price stability in the future. Rising public debt burdens, slowing global labor force growth, and the likelihood that globalization will be partially reversed are additional reasons to expect inflation to rise gradually over the long term to 3% or 4%. According to the rhetoric, we can expect that the US dollar will show a negative trend against other world currencies in the future. We recommend considering purchases of reserve world currencies, the demand for which may increase – for example, the Swiss franc.

On Monday, oil prices increase amid expectations that the vaccines against COVID-19 will bring the coronavirus pandemic under control. Oil prices have grown by nearly 20% in November due to optimism over vaccine development success. WTI crude oil prices are being traded at $42.82.

Market indicators

On Friday, the US stock market closed in the red amid rising numbers of new coronavirus infections and fears of an economic recovery. The Dow and S&P 500 indices showed their first weekly decline in three weeks. The Dow Jones Industrial Average dropped by 219.75 points (0.75%) and counted to 29263.48 points.

Standard & Poor's 500 fell by 24.33 points (0.68%) – to 3557.54 points.

The Nasdaq Composite lost 49.74 points (0.42%) and counted to 11854.97 points.

The dollar index has fallen to 92.25 amid new data on the number of coronavirus cases and on the basis of negative rhetoric by the heads of the Fed about the recovery of the US economy.

The 10-year government bonds yield is stable at 0.83%.

It is worth paying attention to the news feed for today. At this time, we recommend limiting your risks in positions.

The news feed for 2020.11.23:
  • - German manufacturing PMI at 10:30 (GMT+2);
  • - UK manufacturing PMI at 11:30 (GMT+2);
  • - UK services PMI at 11:30 (GMT+2).

by Justforex, 2020.11.23

We advise you to get acquainted with the daily forecasts for the major currency pairs.

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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