Forex

Dollar moves up on stalled stimulus talk; yuan falls after PBOC move

Reuters TOKYO | Updated on October 12, 2020 Published on October 12, 2020

The dollar inched up in early Monday trade as riskier currencies slipped after negotiation on a US stimulus package ran into resistance and as the yuan dropped after China's central bank took a measure seen as aimed at curbing its strength.

The euro slipped 0.15 per cent to $1.1818 while the Australian dollar shed 0.25 per cent to $0.7223.

The yen was little changed at 105.65 to the dollar.

The US dollar index edged up to 93.104, bouncing back from Friday's near-three-week low of 92.997. The index saw its biggest loss in six weeks on Friday on hopes that a deal for new US stimulus would be reached.

President Donald Trump on Friday offered a $1.8 trillion coronavirus relief package in talks with House Speaker Nancy Pelosi - moving closer to Pelosi's $2.2 trillion proposal.

But Trump's offer drew criticism from several Senate Republicans, many of whom are uneasy about the nation's growing debt and concerned a deal would cost Republicans support in the upcoming presidential election, denting the risk-on mood.

Still, with November 3 election only weeks away, investors bet that Democrat Joe Biden is more likely to win the US presidency and offer a larger economic package.

“On the whole, the big picture has not changed that much,” said Kyosuke Suzuki, director of forex at Societe Generale.

Forward thinking

The offshore Chinese yuan dropped after the People's Bank of China (PBOC) said it will lower the reserve requirement ratio for financial institutions when conducting some foreign exchange forwards trading.

Analysts said the measure could keep the yuan's strength in check by encouraging the use of forwards.

“The authorities have not stood in the way of yuan strength, but this move could be seen as a sign that they want to slow the pace of appreciation,” wrote Khoon Goh, head of Asia Research at ANZ in Singapore.

“Our interpretation is that removing the reserve requirement is intended to encourage firms to hedge in order to manage currency risk. It also enhances the foreign exchange market structure by making it easier for foreign investors to hedge their onshore portfolio investments.”

The yuan hit a 17-month high on Friday, both in onshore and offshore trade, having gained more than 6 per cent against the dollar since late May largely driven by a favourable yield differential between China and other major economies.

The yuan last traded at 6.7301 per dollar in offshore trade , down 0.6 per cent.

Elsewhere, sterling traded at $1.3035, having reached a one-month high of $1.3050 on Friday on guarded optimism about Brexit negotiations ahead of a European Union summit this week.

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Published on October 12, 2020
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