"Phew~" Global Economy Takes a Breather Amid Dollar Weakness

Weak Dollar on Fed Rate Cut Expectations
Japanese Yen Rises from 160 to 140 per Dollar
China Now Worries About Strong Yuan... Easier Rate Cuts in UK and EU

Last month, as the value of the dollar fell by more than 2% against other major currencies, several countries that had been under pressure from a strong dollar are now catching their breath.

On the 2nd (local time), major foreign media reported that the dollar's decline continues amid expectations that the U.S. Federal Reserve (Fed) will cut interest rates this month.

[Image source=Reuters Yonhap News]

One of the countries benefiting significantly from the weaker dollar is Japan. The yen's value has been declining since early this year, reaching a 38-year low of over 160 yen per dollar in early July. In response, the Japanese government intervened in the market by purchasing yen and selling dollars, spending 5.9185 trillion yen (approximately 53.8992 trillion won) in April to curb the rapid depreciation of the yen, but the yen's weakness persisted, causing headaches.

However, with the dollar weakening, combined with the Bank of Japan's (BOJ) interest rate hikes and the unwinding of yen carry trades, the yen's value soared. As of this date, the dollar-yen exchange rate is hovering around 146.8 yen, about 10% lower compared to mid-July.

China's financial authorities have also seen a change in circumstances. Earlier this year, they tried to prevent the yuan from weakening too much against the dollar due to concerns about capital outflows. However, the yuan is now showing its strongest performance since June 2023. Authorities now believe that if the yuan's strength becomes more pronounced, it could cause market turmoil. As of this date, the dollar-yuan exchange rate is around 7.12.

Lin Song, ING's Chief China Economist, predicted that by the end of the year, the dollar-yuan exchange rate will reach 7 yuan, representing about a 1% decline from the current level.

The decline in the dollar's value has also brought relief to the European Union (EU) and UK authorities. They face the challenge of lowering interest rates despite concerns about persistent inflation. When central banks try to suppress inflation, a strong dollar renders these efforts ineffective. A weaker dollar makes this task easier. On this day, the pound-dollar exchange rate stood at $1.31, more than 25% higher than its lowest point. The euro-dollar exchange rate is hovering around $1.10.

Emerging markets have also found some breathing room. The Philippine peso recorded its largest monthly gain in about 18 years last month. Indonesia's rupiah saw its highest increase in four years. However, some Latin American countries, such as Mexico, did not benefit from the weaker dollar. Foreign media analyzed that the weaker dollar and expectations of a soft landing for the U.S. economy provide some emerging markets with more room to cut interest rates and respond more sensitively to domestic growth issues.

Guy Miller, Chief Market Strategist at Zurich Insurance Group, said, "The dollar has been under pressure and will continue to be pressured for the remainder of this year."

This content was produced with the assistance of AI translation services.