Pressure on risky currencies fades, US inflation in focus
TOKYO (Reuters) – Risk currencies broke recent lows against the dollar and yen on Monday, as fears of a slowing global economic recovery appeared to have subsided for now.
The outlook for inflation in the United States and the speed of the Federal Reserve’s future policy tightening are again the focus of concern ahead of Tuesday’s consumer price data and testimony from Fed Chairman Jerome Powell, Wednesday.
“If we see strong data, the Fed may advance its projection for its first rate hike further from its current 2023 forecast. It would also mean it would have to complete its cut sooner,” said Shinichiro Kadota, senior strategist. in foreign currency at Barclays.
The euro was trading at $ 1.1868, retreating from its three-month low of $ 1.17815 set on Wednesday, while against the yen, the common currency stood at 130.73 yen, against the low of 129.63 yen over 2.5 months of Thursday.
The British pound held steady at $ 1.3887 as the Aussie rebounded from Friday’s seven-month low of $ 0.7410, although it traded a bit during the session Asian at $ 0.7472.
Risk currencies slipped earlier last week as investors reduced their bets on them, in part because economic data from many countries fell short of market expectations.
Concerns about new coronavirus variants also added to the cautious mood. Although few investors believed the economic recovery would derail, vulnerable currencies such as the Thai baht exposed to tourism were hit.
The baht is above Friday’s low but has lost around 5% against the dollar in a month and on Monday Thailand’s central bank warned the economy could miss its projections as the virus dampens growth.
However, sales in other risky currencies have tended to subside since Friday, and sentiment has been calmed after China largely slashed banks’ reserve requirement ratio (RRR) to support a recovery that is starting to weaken. run out of steam.
“We believe that the larger than expected universal RRR reduction is likely to strengthen market expectations that the PBoC is committed to keeping liquidity stable,” said Tommy Xie, Greater China Research Manager at OCBC Bank .
“This does not mean the start of the monetary easing cycle, as the RRR reduction was primarily aimed at supporting small businesses affected by rising commodity prices.”
On Monday, the yuan was a little firmer at 6.4742 to the dollar and Chinese stocks and bonds rose.
Meanwhile, a pickup in risk sentiment hampered the safe haven value of the yen. The Japanese currency rose to 110.17 yen to the dollar, compared to a one-month high of 109.535 on Thursday.
With Monday’s data schedule relatively empty, many investors are looking to Tuesday’s U.S. consumer price data for June.
Economists polled by Reuters expect the core CPI to rise 0.4% from May and 4.0% from a year earlier after two consecutive months of strong price increases.
Any sign that inflation may be more persistent than previously thought could stoke expectations that the Fed may emerge from the current stimulus sooner, supporting the dollar against other major currencies.
Conversely, more benign data could lead investors to believe that the US central bank can afford to maintain an easy political framework for longer, thus encouraging more betting on risky assets, including risk-sensitive currencies. .
Cryptocurrencies have moved little, with bitcoin at $ 34,337 and ether at $ 2,150.
Report by Hideyuki Sano in Tokyo. Additional reporting by Tom Westbrook in Singapore; Editing by Jacqueline Wong