The US dollar has rallied as markets become nervous over the dire economic situation of China’s second largest property developer – Evergrande.

Evergrande owes around $300 billion to lenders and they’re struggling to find cash to meet their interest payments. So far the Chinese government have been reluctant to bail them out and there are major concerns that a default could have serious knock-on effects across markets all over the world. Their next substantial debt payment is due on Thursday and traders will be closely watching to see what the Chinese authorities will do when they meet up on Weds (if anything). The USD has strengthened as traders seek safe-haven assets.

Adding to the sour risk mood are concerns over soaring global energy costs, mounting tensions between China and the US/UK/Australia over a recent security pact, continuing worries over the delta covid variant and the uncertainty over who will be the next German Chancellor. Furthermore, traders are also have the uncertainty over how the Fed (Weds) and BoE (Thurs) interest rate meetings will go this week.

As a result, the GBP/USD has lost over 1% from Friday and trades at a 4-week low. The EUR/USD trades at a 4-week low and the GBP/EUR is down around 1-cent from last week’s high at a 10-day low.

It seems likely that USD price dynamics will continue to be the main driver this week and traders are likely to remain cautious for now. Markets will be particularly focused on any new developments with Evergrande and how the Fed meeting goes (which might ultimately take a lot of direction from the Evergrande situation).