Dollar in Free Fall: 4 Stocks to Watch as Interest Rate War Escalates

The U.S. dollar plunged to a 17-month low against the Chinese yuan after the Federal Reserve slashed rates as the People’s Bank of China held them steady overnight, raising pressures on interest-rate divergences between the world’s two major economies. The People Bank of China (PBoC) opted to hold the one-year loan prime rate (LPR)—a critical benchmark for most corporate and household loans—at 3.35% during its September fixing. The five-year LPR, a reference for property mortgages, also remained steady at 3.85%.

On the other hand, the U.S. Fed’s decision to cut interest rates is a notable shift in monetary policy, a move that reflects the Federal Reserve's efforts to stimulate growth and revive an economy facing a recession threat. This divergence in monetary policy has led to significant pressure on the U.S. dollar as investors become less confident in the U.S. economy's growth prospects.

According to the latest monetary report, China's economy grew by 5% year over year in the first half of 2024, showing resilience despite a complex global environment. Moreover, the latest data shows that inflation remained subdued, with the consumer price index (CPI) increasing by just 0.1% year-over-year. This reflects the cautious approach taken by the People’s Bank of China to stimulate growth and handle pressure in the falling market.

Among the four stock movers in the wake of the U.S. dollar’s slide against the Chinese yuan were two prominent electric-vehicle makers, XPeng and Li Auto. With their stakes tied to China’s growth and resilience in its economy, XPeng and Li Auto may see a positive trend in growth from this development of the rising Chinese yuan.

The People’s Bank of China noted that while economic performance was better than expected, risks to growth remain due to external uncertainty. However, the latest data offers a sense that China may find avenues of continued growth despite unprecedented economic threats, leaving XPeng and Li Auto among the companies likely to benefit.

The U.S. dollar falling to a 17-month low also implies that companies doing business with China, particularly in the automotive industry, may face challenges from a potentially strong yuan in near-term fundamentals. Considering a possibility that U.S. rate reductions will have added to economic growth sentiment from investors toward growth fundamentals, moving from the dollar in upcoming months for global trade looks inevitable.