On early Monday, after the People’s Bank of China (PBoC) announced rate cuts, USD/CNH bids refresh intraday highs. The weekend reports suggesting greater stimulus from China might provide support to the offshore Chinese Yuan (CNY) pair. Following the three-week increase, the quotation climbs for the second straight day to 7.3240 by press time.
The People’s Bank of China (PBOC) cut the one-year Loan Prime Rate (LPR) to 3.45%, down from 3.55% before and 3.40% projected. However, the Chinese central bank maintained the five-year LPR at 4.20%. It is significant to note that the PBoC earlier reduced the Medium-term Lending Facility (MLF), Standing Lending Facility rates (SLFs), and Reverse Repo Rates in order to inject cash into the world’s second-largest economy.
According to Reuters, Chinese official media Xinhua reported that the government intends to provide fertilizer and pesticide subsidies in the country’s northern area earlier in the day. In the same vein, weekend news from China reveals the dragon nation’s increased attempts to inject liquidity into the world’s second-largest economy, which prompted the market’s cautious optimism on Monday morning.
While portraying the mood, Wall Street finished neutral on Friday, while US Treasury bond rates fell following a severely bad week for equities and bullish bound coupons. Nonetheless, the S&P500 futures were at a monthly low at the time of publication. The US Dollar Index (DXY), on the other hand, is retreating from a 10-week high as market participants struggle to accurately forecast Fed Chairman Jerome Powell’s views at this week’s Jackson Hole Symposium. Nonetheless, the DXY gained for five weeks in a row before falling to 103.30.
The positive US NY Fed Manufacturing Index, Retail Sales, and wage growth helped the DXY to continue up for the sixth week in a row, aided by the hawkish Fed Minutes. The recent Fed Minutes revealed that, while being divided on the impending rate rise, most officials favoured supporting the fight against ‘sticky’ inflation. Furthermore, market participants began reassessing earlier preconceptions regarding major central banks, adding strength to risk aversion, which was mostly fueled by China-related difficulties. Similarly, investors believed that the conclusion of the rate hiking cycle is still uncertain, implying additional adverse pressure on riskier assets and a rush for the U.S. Dollar.
Preliminary readings of the August month Purchasing Managers Indexes (PMIs) and Durable Goods Orders for July will keep USD/CNH traders entertained ahead of the central bankers’ presentations at the annual Jackson Hole Symposium event.
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