FX Roundup: Dollar recovers as Chinese selloff continues, US consumer confidence up
The dollar recovered some ground on Tuesday, even though Chinese stocks continued to trade lower as the People's Bank of China cut interest rates for the fifth time since November in a bid to boost the country's slowing economy.
The PBoC lowered its benchmark lending and deposit rates by 0.25 percentage points, adding the rate cuts will become effective on 26 August and are aimed at reducing corporate borrowing costs.
China's central bank also reduced its reserve requirement ratio by 0.5 percentage points, starting from 6 September, adding the cuts are meant to ensure enough liquidity and stable credit growth. The moves will relieve some of the strain on the country's trade partners and commodity exporters.
At the close Asian trading, the dollar was trading up 0.14% against the yuan, fetching CNY6.4128. Chinese stocks fell 7.6% on Tuesday, after slumping 8.5% on Monday, when they wiped off their 2015 gains.
"China’s decision to cut reserve requirements by 50bp (0.5 percentage points) will be regarded by many investors as overdue but nevertheless reassuring," analysts at JP Morgan said in a note.
"It was the failure of the authorities to act over the weekend that seemed to spook markets yesterday as it strengthened the impression that Chinese policymakers were starting to rely more heavily on the exchange rate as a way of stimulating demand as opposed to taking additional domestic policy measures.”
The dollar also rose 1.09% against the Japanese yen to JPY119.70. European currencies slipped against the dollar, with the euro down 1.32% changing hands at $1.1466, while the pound fell 0.18% to $1.5748 on positive US data.
US consumer confidence jumped from 90.9 to 101.5 in August, well ahead of expectations for a 93.4 reading
The figure is the second-highest consumer confidence reading since the recession.
“If the markets of Europe and the US can stabilise over the coming days, consumer confidence will likely remain relatively unaffected. More worrying could be the oil price plunge that will certainly affect local economies in Texas and Oklahoma," said Dennis de Jong, managing director at UFX.com
“Yet, Yellen will know that cheaper gas means cheaper prices at the pumps, which may balance out any stock market ramifications.”
Commenting on the euro, Jane Foley, senior currency strategist at Rabobank, said despite the currency's relatively strong showing, labelling it as a safe haven currency would be difficult.
“In recent sessions the euro has been displaying many of the attributes of a safe haven currency. We would extend this behaviour back a few months to the height of Grexit worries. In this period, the euro confounded many commentators by remaining very well supported.
“The Eurozone crisis and concerns about the reversibility of EMU have exposed a potential fundamental weakness in the single currency and we would therefore argue that it is difficult to label the euro as a safe haven,” Foley concluded.
Finally, the pound rose 1.10% against the euro fetching €1.3738, and 1.27% against the Swiss franc fetching CHF1.4871.