Dollar eases as risk sentiment improves, China moves to support yuan

Dollar eases as risk sentiment improves, China moves to support yuan

The safe-haven dollar in Asia drifted lower on Wednesday despite fresh signs of the Chinese economy’s struggles. However, gains for European equity futures indicated improved risk appetite. State-owned Chinese banks selling dollars helped the yuan rally off a one-month low, even as China slipped into deflation. The Chinese central bank’s exchange-rate fixing before the open signaled its discomfort with the recent declines in the yuan. This also supported the Australian and New Zealand dollars, which climbed off multi-month lows.

The U.S. dollar index, which measures the currency against other counterparts, eased 0.15% to 102.37 in the Asian afternoon. This was a slight decrease from its 0.47% rise in the previous session. The euro and sterling both saw gains against the dollar, with the euro adding 0.2% and sterling gaining 0.14%.

Pan-European EURO STOXX 50 futures pointed to a 0.9% rise, following a significant drop on Tuesday due to bank shares selling off after Italy announced a 40% windfall tax on banks. Italy’s finance ministry later issued guidelines capping the tax at 0.1% of total assets.

Despite concerns about global growth stemming from China’s economy, the dollar continued to ease. Data showed that consumer prices in China fell for the first time in over two years in July. Ray Attrill, head of foreign-exchange strategy at National Australia Bank, noted that there were no signs yet of imminent support for the Chinese economy. He also mentioned that the dollar index would likely stay supported above 102, with 103 being the likely near-term ceiling.

The Australian dollar saw a slight increase of 0.13% after dipping to its lowest level since June 1. New Zealand’s kiwi also rebounded, rising 0.16% from the previous session’s two-month low.

Market participants are eagerly awaiting U.S. inflation data, which is due on Thursday. This data will provide clues on the path for Federal Reserve policy. There have been mixed signals from Fed officials, with some suggesting that interest rates are already high enough while others believe further rate hikes are likely.

Bart Wakabayashi, Tokyo branch manager at State Street Bank and Trust, noted that there have been trickles of more dovish commentary from Fed officials, indicating a potential shift in thinking. However, the market remains uncertain about the next meeting and the impact of these comments.

Money market traders still heavily favor a quarter-point rate increase at the next policy meeting in September, with odds currently at 86.5%.

Overall, the article highlights the drift lower of the safe-haven dollar in Asia, despite concerns about the Chinese economy. It also discusses the impact on other currencies, such as the Australian and New Zealand dollars. Additionally, the article mentions the upcoming U.S. inflation data and the mixed signals from Fed officials regarding interest rates.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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