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Dollar near one-month high, yuan up after rate cut

15.08.2023 10:46  Autor: InvestCentrum  Sekce: Burzovní zpravodajství  Tisk

The US dollar weakened in early European trade on Tuesday, lingering near recent highs, while the Chinese yuan experienced volatility following an unexpected rate cut by the country’s central bank.

At 02:00 ET (06:00 GMT), the Dollar Index, which gauges the dollar against six major currencies, was down 0.1% at 102.982. It had reached a 1-1/2-month peak of 103.46 on Monday.

Dollar strong, yuan volatile post China rate cut, data

The dollar gained strength due to disappointing Chinese economic indicators, raising concerns about global growth and leading to increased demand for the safe-haven greenback.

Prior to the release of the Chinese data, the People’s Bank of China surprised markets by announcing its second key interest rate cut in three months.

“The market was expecting the PBoC to wait until September before easing again, and today’s cuts suggest that the authorities‘ concern about the state of the macroeconomy is mounting,” noted analysts at ING in a recent note.

This concern is justified, given that July’s industrial output only expanded by 3.7% year-on-year, a deceleration from June’s growth rate of 4.4%. Similarly, July’s retail sales saw a modest increase of 2.5%, down from the previous month’s 3.1% rise. These numbers amplify worries about the weakening recovery of the world’s second-largest economy following the pandemic.

The USD/CNY currency pair experienced a 0.4% decline, reaching 7.2336 amidst volatile trading. It had previously surged to 7.3115, a level not seen since November 4. Notably, significant state-owned banks were reportedly involved in selling dollars to bolster the Chinese currency.

Upcoming U.S. retail sales data is anticipated

The recent strength of the dollar is driven by worries that persistent inflation could lead the Federal Reserve to maintain elevated interest rates for a longer duration than previously anticipated by traders.

The upcoming release of the latest U.S. retail sales data later on Tuesday could contribute to the ongoing discussion. Despite the backdrop of increasing rates, the U.S. consumer has displayed resilience, and if this strength persists, it might provide additional support to the dollar.

The ongoing U.S. political turmoil could also have an impact, especially considering the recent developments involving former President Donald Trump. A Georgia grand jury has issued an indictment accusing him of attempting to overturn his 2020 election loss to Democrat Joe Biden, potentially adding further uncertainty to the situation.

The U.K. unemployment rate has increased

Following the release of the most recent U.K. employment data, GBP/USD saw a 0.2% increase to reach 1.2710. The data indicated that the U.K.’s unemployment rate rose to 4.2% in June, coupled with a 29,000 rise in the claimant count for July. These figures suggest that the country’s labor market is beginning to experience the impact of the extended tightening cycle.

USD/JPY remained mostly steady at 145.49, closely near the earlier session’s nine-month peak of 145.60. The dollar’s previous rise beyond 145 resulted in Japanese authorities intervening, and traders are now monitoring for potential intervention as they seek to halt the yen’s downward trend.

EUR/USD edged up 0.1% to 1.0910 ahead of the upcoming release of the latest German ZEW economic sentiment index. The index is anticipated to reveal ongoing fragility in confidence within the eurozone’s largest economy.

The German economy has been adversely affected by a combination of factors, including sluggish trade with crucial partner China and a downturn in its substantial manufacturing and construction sectors. This confluence of challenges raises concerns of a potential recession for the broader eurozone economy.

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