Dollar under pressure after moves from China, Japan

The U.S. dollar (DX-Y.NYB) has been under pressure after China's central bank made moves to push back against the dollar's strength. It's also feeling the impact of hawkish talk from the head of Japan's central bank. Yahoo Finance Markets Reporter Jared Blikre breaks down the dollar's moves.

Video transcript

BRAD SMITH: Is the dollar still king? Yes, probably. But it seems like some central banks might be pushing back on the recent strength that we've seen. Yahoo Finance's Jared Blikre has the details of our biased opinion perhaps if the dollar is still king. Bias to a certain extent, though. There's data. Jared's got that. Hey, Jared.

JARED BLIKRE: Hey. Thank you. Let's go to the YFi Interactive after that glorious introduction there. I'm going to focus on what the PBOC, the Chinese central bank is pushing back against, and that would be a stronger US dollar. Now, the Chinese government manages-- manages their currency in two different phases. One is the onshore yuan, and that is what we are looking at here, that is CNY equals X in the Yahoo Finance ticker system. You can see that's at $7.2925 per Chinese yuan-- and excuse me yuan per Chinese dollar.

Now, you take a look at what's happening on the offshore market, that's kind of the free-floating currency that's a little bit higher here. Now, higher number means-- means a stronger dollar and a weaker currency. So the Chinese government with their onshore yuan is trying to make that artificially stronger than the market. The problem is this has not been working.

Here is a year-to-date chart of what has happened, and you can see the US dollar has advanced 5.74% going in the wrong direction. Now, a weaker currency for the Chinese government does solve some of their problems, but it also introduces others. One of the big problems with a weakening currency, which helps exports is that it leads to capital outflows. That is people want to-- people over there holding yuan in all over the world, they want to exchange those and hold something that is not losing value.

So that's what the Chinese government is pushing back against. And a lot of their measures have just been half measures so far. The market has taken it in stride and not really taken it seriously because we've seen opposite reactions in the market with which we would expect them to go if they did respect what the government is doing here.

Now, I also want to show you what's going on in the US dollar. Broadly speaking, this is a year-to-date chart, the US dollar is down today. If I show you a candlestick chart, you can see on a three-month basis, it is ticking down. But this is in a definite uptrend. This is in the midst of a three-month or a two-month uptrend here. And if we look at the broad currency pairs here of the US dollar, you can see all that red means the US dollar is weakening against all but two of the currencies. Those two in green are the Turkish lira and the Argentine peso. So really a lot of weakness here.

Now, what's really impressive when we talk about dollar strength and dollar weakness is the effect that it has on the futures market. So let's take a look at what's happened in futures. We're seeing copper, that is picking up. That is taking advantage of a weaker US dollar today. But you take a look at what's happened over the last couple of months with copper, it has gone sideways.

Meanwhile, the US dollar has been trending up. So what does that tell me? If the US dollar were to reverse course, that would aid a nice rally in copper futures, which have so far been depressed. You can see there's that big lead up earlier in the year-- that was China reopening optimism, but that largely faded. So one of the things I'm looking forward to in CPI this week is to see exactly how much commodity inflation is picking up. And we're going to see that in energy prices.

Headline CPI expected to print a 3.6, and that is up from a 3.0 only 2 months ago. So if we see a rise in goods inflation and a declining dollar, you can see the virtuous or unvirtuous cycle that creates.

JULIE HYMAN: And we'll keep watching that. Thanks so much. Jared Blikre, talking us through the latest dollar action and the ripple effect.