The Chinese yuan tumbled down in offshore trading after the People’s Bank of China announced that it would lower the reserve requirement ratio for financial institutions when conducting some FX forwards trading. Experts think the measure could keep the Chinese yuan’s strength in check by encouraging the use of forwards.
Khoon Goh, the head of Asia Research at ANZ in Singapore, stated that the authorities have not stood in the way of yuan strength. However, this move could be a sign that they want to slow the pace of appreciation.
On Friday, the yuan skyrocketed to a 17-month high, both in onshore and offshore trade. It gained more than 6% against the U.S. dollar since late May.
Masashi Hashimoto, the senior economist at Institute for International Monetary Affairs in Tokyo, said that the yuan had been supported by the relative strength of the Chinese economy as the country has managed the Covid-19 much better than some other countries. However, it seems the Chinese authorities have grown wary of the yuan’s strength. The yuan traded at 6.7171 per dollar in offshore trade, at last, dropping by 0.4%.
What about the U.S. dollar and European currencies?
The greenback climbed up in early Monday trade while riskier currencies declined after negotiation on a U.S. stimulus package ran into resistance.
The U.S. dollar index rose to 93.108, rebounding from Friday’s near-three-week low of 92.997. On Friday, the index saw its biggest loss in six weeks due to traders’ hopes that U.S. authorities would reach a deal for new U.S. stimulus. President Donald Trump offered a $1.8 trillion Covid-19 relief package in negotiations with House Speaker Nancy Pelosi. It was closer to Pelosi’s $2.2 trillion proposal than Trump’s earlier offers.
However, it drew criticism from several Senate Republicans as they are uneasy about the nation’s growing debt. However, Nov. 3 election is only weeks away, and traders bet that Democrat Joe Biden is more likely to win the U.S. presidency and propose a larger economic package.
Yusuke Okada, the manager of the forex at Mitsubishi Trust Bank, stated that over the past few days, the FX markets seem to assume Biden will win the election. Meanwhile, Trump seems desperate to get a deal. However, his comments are getting treated like noise.
Meanwhile, the euro declined by 0.1% to $1.1817. The British Pound traded at $1.3035 after reaching a one-month high of $1.3050 on Friday. It rallied due to optimism about Brexit negotiations ahead of the EU summit this week.
In Asia, the Australian dollar tumbled down by 0.3% to $0.7222. The Japanese yen changed slightly at 105.52 to the dollar.
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