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03.01.202209:05 Forex Analysis & Reviews: Who will take the lead between the US dollar and Chinese yuan?

Exchange Rates 03.01.2022 analysis

The eternal rivals, the American and Chinese currencies, reasserted themselves at the beginning of the new year. Analysts said that they have rejoined the race to take control of the global financial market.

Experts believe that the yuan has quite high chances in relation to the US dollar. Many analysts view the Chinese currency as a successor of the American one, which can take the place of the global reserve means of payment. This gives confidence to the yuan and adds nervousness to the US dollar, although no one doubts the strength of the latter. It can be recalled that the US currency showed the best result in six years at the end of 2021, although it slightly lost its position at the close of the final trading day of the past year.

In the long term, experts admit that the US dollar's decline will be moderate, but not very loud. The value of the US dollar is declining against the background of the gradual recovery of the global economy after the curtailment of lockdowns caused by COVID-19. Other reasons for the potential decline will be increased political tensions between the United States and Europe, as well as the aggressive policy of the US towards China and Mexico. Experts also highlighted that the increased pressure from Washington on the above-mentioned trading partners with the use of anti-dumping measures and sanctions contributes to the devaluation of the USD.

Currently, the Chinese currency, which operates "quietly," will wait for its finest hour. By choosing the moment when the US dollar will weaken the most, the yuan will take advantage of the situation and press it out on the global financial market. Similar attempts were made last year, but they were unsuccessful. But at the end of 2021, the yuan was among the leaders among the currencies of emerging markets.

According to analysts, the US dollar's "protective function" in the world financial market over the past decade is gradually weakening. Its loss of the "safe haven" asset status will continue due to the transition of a number of countries to settlements in national currencies in international trade. The Fed's upcoming action to tighten monetary policy also adds pressure. Experts believe that this increases the risks of the devaluation of the US currency.

As for the Euro currency, this year can also bring disappointment amid the Fed's rate hike. The past year seemed extremely unfortunate for the euro, so the markets are worried that this might happen again as the ECB continues to adhere to soft monetary policy. According to the President of the regulator Christine Lagarde, tightening monetary policy is now unreasonable, since it interferes with economic recovery. The European regulator does not plan to raise interest rates this 2022.

The euro is currently inferior to the US dollar again, and the EUR/USD pair is capable of returning to the range of 1.0850-1.0900 and staying there for a long time. However, experts expect the pair to recover in the coming month, although they are not hoping for steady growth. On Monday morning, the EUR USD pair was trading at the level of 1.1338, attempting to keep its recovered positions.

Exchange Rates 03.01.2022 analysis

There may be no winners or losers in the global financial market this year. The US currency has impressive potential to maintain its strength, but the Chinese one is strong due to its wait-and-see strategy. At the same time, experts summarize that both currencies claiming leadership are capable of peacefully coexisting in the global financial space.

Larisa Kolesnikova,
Analytical expert of InstaSpot
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