Forex

Yuan strength boosts risk sentiment, euro nears four-week high

Reuters TOKYO | Updated on July 09, 2018 Published on July 09, 2018

The Chinese yuan rebounded and the euro rose to its highest since June 14 on Monday as investors bought into riskier assets following favourable US jobs data last week and evidence that trade tensions have not yet dented economic momentum.

Investors appear for now to be ignoring the deepening trade conflict between the United States and China, preferring to focus on decent economic data. Numbers showing a healthy rise in German exports have also buoyed the mood.

Elsewhere the big story was sterling's resilience in the face of the Brexit minister quitting because of opposition to Prime Minister Theresa May's newly-agreed plan for life after leaving the European Union. The pound rose to $1.3328 as traders focused on the increased likelihood of a “soft Brexit” in which the UK and EU retain close trade ties.

“Broad risk appetite in the market is firm because of the Chinese currency's strong gains which is also lifting the Aussie and keeping the dollar weak,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.

The yuan rose half a per cent in offshore markets to 6.6292 against the dollar, further away from the lows hit in June - its biggest ever monthly fall.

The Chinese currency gained last week on the back of a stronger midpoint fixing and after data showed China's foreign exchange reserves rising in June.

Benchmark stock market indices in China also posted smart gains, pulling higher-yielding currencies such as the Australian dollar higher.

The euro rose as much as 0.3 per cent to $1.1779, the strongest since June 14 as the dollar suffered broad-based falls. The dollar index against a basket of six major currencies fell 0.2 per cent to 93.899..

It had lost nearly 0.5 per cent on Friday and stooped to 93.921, its lowest since June 14, after closely-watched US wages indicators disappointed the market.

The data showed average US hourly earnings gained five cents, or 0.2 per cent in June after increasing 0.3 per cent in May. This pointed to moderate inflation pressures that dented expectations that the Federal Reserve would raise interest rates a total of four times in 2018.

Nonfarm payrolls did rise by a stronger-than-expected 213,000 in June, Friday's data also showed.

“US wages did not increase so substantially, so there won't be a rapid pickup in the pace of long-term interest rate hikes,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

“If US long-term interest rates don't rise, there is less support for the dollar-yen.”

The dollar was little changed at 110.49 yen after losing 0.2 per cent on Friday. The Australian dollar, which is seen as a proxy for a China-related slowdown because of the country's dependence on Chinese demand for its exports, rose half a percent to $0.7463.

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Published on July 09, 2018
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