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China’s Biggest Fears Are Giving Dollar All the Support It Needs

  • Default risk, Covid spread, slow growth keep the yuan in check
  • Chinese currency is second-best EM performer vs USD this year

The U.S. dollar is getting a boost from an unusual place -- China.

Increasing coronavirus infections, slower growth and rising risk of default in the world’s second-largest economy are combining to help fuel a stronger dollar, according to Morgan Stanley strategists. But at the same time, these factors are combining to keep the yuan in a tight trading range, which caps how high the greenback can go.