Chinese Economic Beat Spurs Risk Appetite, Weighs on Dollar

    Better-than-expected Chinese growth data on Wednesday boosted Asian currencies, driving the yuan to a one-week high and putting a dampener on the U.S. dollar, which had been trading near a nine-month low ahead of a Fed policy meeting on Tuesday and Wednesday. Investors had hoped the central bank might signal a tightening of policy. Still, in a sign of continued softness in global trade and manufacturing activity, the U.S. Dollar Index fell 0.4% to 101.10.

    Official data showed China’s economy grew 1.3% in the third quarter, accelerating from 0.5% in the previous three months and topping market forecasts for a 3.2% annual growth rate. Retail sales and industrial production data also beat expectations. Consumer spending, which faltered in the spring after a Covid restriction on imports and a slump in real estate investment, is stabilizing.

    China’s factories are still pumping out a flood of goods, even as consumers at home cut back and a trade war with the United States clouds the outlook. That could help support a more sustainable recovery, although experts say China’s debt levels, a property downturn, and a slowing economy still pose significant risks to growth.

    The yuan was up 2.2% against the greenback at its Wednesday mid-session peak of 7.3889 per dollar after hitting a one-week high on the back of more robust economic data. The yuan can fluctuate up or down by 2% from its government-set starting price each day in tightly controlled trade. While that limits the size of daily swings, a prolonged slide against the dollar could prompt companies and investors to question Beijing’s currency policy.

    The dollar, the reserve currency of choice for many investors because of its stable nature and ties to the world’s largest economies, has been on a steady decline since late August as investors have grown less confident about the health of the global economy. The U.S. currency strongly correlates with interest rates and is often used as a proxy for risk appetite.

    In other markets, the euro climbed to a four-week high against the dollar, lifted by more robust eurozone economic data, including a rebound in job creation and growth in consumer spending. It was also supported by signs that the euro zone’s banks are making progress on deleveraging their balance sheets.

    However, a blast at a Gaza hospital kept moves modest and traders on edge at the prospect of a widening conflict. The attack reportedly killed and wounded dozens, and medical supplies and food are in short supply. An Israeli President’s Office spokesman said Biden would be briefed on Israel’s aims and strategy in Gaza and “will make clear that the U.S. supports Israel’s right to defend itself.” The spokesman said Biden will meet Prime Minister Benjamin Netanyahu and President Isaac Herzog at Ben Gurion Airport in Tel Aviv as his visit begins. He will travel on to the West Bank and Saudi Arabia.

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