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Dollar dips, China boosts global growth hopes

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Dollar dips, China boosts global growth hopes
© Reuters. FILE PHOTO: U.S. Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Karen Brettell

NEW YORK (Reuters) -The U.S. dollar weakened on Tuesday after China cut interest rates in a bid to prop up its struggling property market, raising hopes of additional stimulus that would boost global growth.

The yen gained, meanwhile, but stayed below the 150.88 per dollar level reached last Monday, its weakest in 11 weeks, as investors focus on whether renewed weakness in the Japanese currency is likely to prompt intervention by the Bank of Japan and Ministry of Finance.

China cut the five-year loan prime rate (LPR) by 25 basis points, which was the largest since the reference rate was introduced in 2019 and far more than analysts had expected.

“The thinking is if China hits the gas pedal then global growth will pick up. Then you start to see dollar selling and money going into emerging markets on the back of that,” said Adam Button, chief currency analyst at ForexLive in Toronto.

Bloomberg News on Sunday quoted Chinese Premier Li Qiang calling for “pragmatic and forceful” action to increase China’s confidence in the economy.

The Australian dollar, which is seen as a proxy for global growth, rose 0.20% to $0.6550, after earlier reaching $0.6579, the highest since Feb. 2.

In the offshore market, the yuan strengthened as far as 7.1963 per dollar, the strongest since Feb. 7.

Investors are also brushing off higher than expected U.S. consumer and producer price inflation data for January released last week as likely being impacted by seasonal adjustments and not indicating renewed price pressures. That would leave the Federal Reserve on track to begin cutting interest rates in the coming months.

“There’s a lingering feeling that the CPI numbers were more of a seasonal adjustment story than a resurgence in inflation story,” Button said. “If central banks wait until inflation is dead and buried then we might end up in a situation where risk assets struggle and global growth is crippled.”

The Fed on Wednesday will release minutes from its Jan. 30 to 31 meeting, which will be evaluated for any new clues on when the U.S. central bank is likely to begin cutting rates.

The was last down 0.21% at 104.08, and earlier reached 103.79, the lowest since Feb. 2. The euro rose 0.25% to $1.0804 and got as high as $1.0839, the highest since Feb. 2.

The greenback fell 0.05% to 150.04 Japanese yen, after earlier trading at 150.45.

The yen has lost 7% in value in 2024 alone, having weakened past the 150-level against the dollar on Feb. 13. In the past, traders have viewed 150 as a line in the sand for the Bank of Japan and the Ministry of Finance that could trigger intervention, as was the case in late 2022.

This time around, the move has been more gradual and volatility has been modest, which suggests little immediate nervousness from either Japanese authorities or currency traders.

Japanese finance minister Shunichi Suzuki said on Tuesday authorities were “closely watching FX moves with a high sense of urgency”, a phrase he has used previously, and stated the yen exchange rate was set by a number of factors.

Sterling gained after Bank of England Governor Andrew Bailey said on Tuesday he was comfortable with investors betting on interest rate cuts this year but pointed to signs that Britain’s economy was picking up after falling into recession in late 2023.

It was last up 0.20% at $1.2618 and earlier rose to $1.2668, the highest since Feb. 13.

The greenback gained 0.24% against the Canadian dollar to $1.3523 loonies.

Data on Tuesday showed that Canada’s annual inflation rate slowed significantly more than expected to 2.9% in January and core price measures also eased, bringing forward bets for an early interest rate cut.

In cryptocurrencies, bitcoin rose 0.33% to $52,076.

Forex

Dollar flat ahead of key inflation release; Middle East tensions ease

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Investing.com – The U.S. dollar traded largely unchanged in calm trading Monday, amid a calming of tensions in the Middle East and ahead of the release of the Federal Reserve’s favorite gauge of inflation later in the week.

At 05:40 ET (09:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded flat at 106.005, retreating from the five-month peak of 106.51 seen last week. 

Dollar stable ahead of key inflation release

The dollar surged to new highs last week after Israel launched a missile attack on Iran, in an escalation of the conflict in the volatile Middle East.

However, tensions appear to have been cooled, with Tehran downplaying Israel’s retaliatory drone strike against Iran, in what appeared to be a move aimed at averting a regional war.

“Sentiment is generally supported across asset classes as the week starts,” said analysts at ING, in a note. “All interested parties appear to have chosen the path of downplaying the size and consequences of Friday’s Israeli strikes in Iran.”

That said, the dollar has also been supported by strong U.S. economic data and persistent inflation, coupled with a slew of hawkish comments from Fed officials, reducing the chances of the Federal Reserve cutting rates any time soon. 

These officials will be keeping quiet this week, ahead of next week’s , but activity is likely to be limited ahead of Friday’s look at the , the Federal Reserve’s favored inflation gauge, which economists expect to remain elevated in March.

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Other economic data for the week includes an initial estimate of first quarter , which is expected to have moderated slightly from the previous quarter. Data on and will also be released along with revised figures on consumer sentiment and inflation expectations.

Euro edges up, but ECB set to cut early

In Europe, rose 0.1% to 1.0656, trading near six-month lows with regional economic weakness set to result in the European Central Bank cutting interest rates before the Federal Reserve.

Elevated tensions in the Middle East are unlikely to drive up energy prices and should not affect the European Central Bank’s plans to start cutting interest rates in June, French central bank chief Francois Villeroy de Galhau said on Sunday.

“Barring surprises, there is no need to wait much longer”, Villeroy told business daily Les Echos in an interview. “At the moment, the conflict is not leading to a marked rise in oil prices. If this were ever the case, we would have to analyse monetary policy for whether this shock is temporary and limited, or whether it is transmitted – beyond commodities – to underlying inflation.”

climbed 0.1% lower to 1.2355, just above its lowest level since mid-November seen on Friday, after Bank of England Governor Andrew Bailey and Deputy Governor Dave Ramsden alluded last week to Britain’s inflation slowing as expected. 

“Sterling markets moved on Friday after the Bank of England’s deputy governor, Dave Ramsden, sounded less concerned about price pressures and suggested that there were indications of UK inflation converging to that of the eurozone,” ING said. “Crucially, he added that the Bank will be “responsive” as evidence on inflation accumulates.”

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Yen weak ahead of BOJ meeting

In Asia, traded 0.1% higher at 154.74, remaining well above the 154 level and near 34-year highs, keeping investors on guard over any potential government intervention. 

Focus this week is on a Bank of Japan rate decision on Friday – the central bank’s first meeting after a historic rate hike in March. Any cues on future rate hikes and policy changes will be closely watched.

edged 0.1% higher to 7.2437, after the People’s Bank of China kept its benchmark on hold, as expected. 

The LPR was kept at record lows, as the PBOC moved to keep monetary policy as loose as possible to buoy economic growth. However, low interest rates are also expected to keep the yuan under pressure. 

The USDCNY pair was close to a five-month high, above the psychologically important 7.2 level. 

 

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UBS raises USDCNY forecast amid geopolitical tensions

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On Monday, UBS revised its forecast for the exchange rate, citing increasing geopolitical tensions and expectations of fewer rate cuts by the Federal Reserve. The Swiss financial services firm now anticipates the USD/CNY rate to reach 7.35 by June, up from the previous target of 7.20. Similarly, the September target has been adjusted to 7.30 from 7.15, the December target to 7.25 from 7.15, and the March 2025 target to 7.20 from 7.15.

UBS suggests that the People’s Bank of China (PBoC) is showing a greater willingness to allow a weaker yuan, which could contribute to additional short-term pressure on the Chinese currency. The firm’s analysis points to the rising geopolitical tensions as a key factor influencing the yuan’s trajectory.

Despite the potential for a pivot by the Federal Reserve in September, which might typically ease the upward trend of the USD/CNY, UBS believes that the impact could be mitigated. The firm notes that market concerns about US-China trade tensions, especially in the lead-up to the US presidential election in November, could dampen the effects of any policy changes by the Fed.

UBS’s revised targets reflect a cautious outlook on the Chinese yuan, as the global financial market continues to weigh various geopolitical and economic factors. The firm’s adjustment of the USD/CNY targets highlights the complex interplay between central bank policies, international relations, and market sentiment.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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Asia FX weak as rate fears keep dollar steady

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Investing.com– Most Asian currencies moved in a flat-to-low range on Monday, and were nursing steep losses from the past week as concerns over higher-for-longer interest rates kept traders largely biased towards the dollar.

Still, easing fears over a bigger conflict in the Middle East offered regional currencies some relief, as risk appetite improved. 

But most regional units still retained a bulk of their losses from over the past week, as traders steadily priced out expectations that the Federal Reserve will cut interest rates by as soon as June.

Dollar steady, more rate cues awaited this week 

The and both fell slightly in Asian trade on Monday, but remained close to over five-month highs hit earlier in April. 

Waning bets on a June rate cut boosted the dollar, especially after strong U.S. inflation readings and hawkish commentary from top Fed officials. 

Focus this week is on more cues on U.S. monetary policy, specifically from data- which is the Fed’s preferred inflation gauge. The reading is due on Friday and is expected to reiterate that U.S. inflation remained sticky in March.

More cues on the U.S. economy are also due this week, with data for April set to offer more insight into business activity.

Chinese yuan steady after PBOC holds loan prime rate 

The Chinese yuan’s pair moved little on Monday after the People’s Bank of China kept its benchmark on hold, as expected. 

The LPR was kept at record lows, as the PBOC moved to keep monetary policy as loose as possible to buoy economic growth. The central bank is also expected to further trim the rate this year, after a cut to the in February. 

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But low interest rates are also expected to keep the yuan under pressure. The USDCNY pair was close to a five-month high, above the psychologically important 7.2 level. 

Japanese yen flat, BOJ meeting awaited 

The Japanese yen’s pair moved little on Monday, but remained well above the 154 level amid little relief from the dollar.

This kept investors on guard over any potential government intervention, especially as the USDJPY pair tested 34-year highs at 155. 

Focus this week is on a on Friday- the central bank’s first meeting after a historic rate hike in March. Any cues on future rate hikes and policy changes will be closely watched.

Broader Asian currencies moved little as fears of higher-for-longer U.S. rates remained in play. 

The Australian dollar’s pair rose 0.3% after tumbling to a five-month low last week.

The South Korean won’s pair rose 0.5%, while the Singapore dollar’s pair was flat.

The Indian rupee’s pair rose 0.1%, but was trading below record highs hit last week.

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