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Stimulus expected around the world as dollar surges

The US dollar surged on Monday and into Tuesday after it became clear that monetary policy setters and governments were considering a round of stimulus to get the global economy moving again.

The dollar reached its highest point in three weeks and managed to defeat many of its rivals.

The onshore yuan in China, for example, noted a loss of a fifth of a percentage point in its pair with the US dollar, reaching 7.0661 dollars at one stage. This is likely due in part to the dollar’s appeal among traders but was also due to the decision of the People’s Bank of China – a centrally controlled rate-setting authority in the country – to reduce its lending rate.

Other economic factors which helped enhance these market conditions included a rise in benchmark US Treasury yields. Despite previously falling to their lowest point in three years, they began to rise again on Monday.

The decision of the German government to no longer pursue a balanced budget at all costs created some assistance for the dollar. It is now able to grow its spending, a move clearly designed to boost the flagging economy in Europe’s largest country.

The single European currency is in a low position overall, although over the course of Tuesday, it managed to make tiny gains against the US dollar. It reached $1.1086 at one stage.

This was due in part to the political situation unfolding in Italy. The country, which is known for its chronic instability and constant changes of government, is now facing yet another move in leadership.

The two parties currently in coalition, the League and the Five Star Movement, are no longer harmonious. It is understood that the Five Star Movement is now conversing with the Democratic Party, which is currently in opposition.

The country may face a sudden general election, however, as the League confirmed that it would bring a no-confidence vote against Prime Minister Giuseppe Conte. Conte is set to speak to the Italian Parliament today.

The dollar has gained in its pair with the Japanese yen for several sessions, despite a poor performance last week which saw it endure its worst performance in the pair since very early in 2019. However, on Tuesday it stagnated a little and did not manage to surpass 106.580 yen.

In its pair with the Swiss franc, which is also known for being a safe haven currency that can be traded safely when economic instability hits, the greenback continued to hold firm. It was recorded close to its highest point in two weeks, at 0.9820 francs.

Elsewhere, several key summits are happening soon.

It is expected that trade will be key to talks at the G7 summit on Saturday. British Prime Minister Boris Johnson will be hoping that his planned talks with Justin Trudeau of Canada will focus more on post-Brexit trade than they will on the ongoing row over “Jihadi Jack”, a former dual citizen accused of fighting ISIS who has since been stripped of his British citizenship.

The Jackson Hole Symposium of central bankers will kick off in 72 hours in Wyoming in the US.

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