Yuan hits 6-month low, dollar falls as Fed pause wagers increase

14 Jun 2023 , 11:55 AM

On Wednesday, the dollar hit close to a three-week low against the euro and a one-month low against the pound after unexpectedly weak U.S. inflation data confirmed the Federal Reserve would not be raising interest rates later in the day.

Amid suspicion that even more stimulus is on the way to help the stuttering post-COVID economic recovery, China’s yuan slumped to a 6-1/2-month low, continuing its plunge after the central bank reduced rates on Tuesday.

After falling to its lowest level since May 22 overnight at 103.04, the dollar index, which compares the greenback to six major counterparts, including the euro and pound, was little changed at 103.29 in early Asian trading.

The consumer price index (CPI) for the United States increased by just 0.1% last month, and its 4.0% year-over-year growth rate was the weakest since March 2021.

The consumer price index (CPI) for the United States increased by just 0.1% last month, and its 4.0% year-over-year growth rate was the weakest since March 2021.

According to the CME Group’s FedWatch Tool, as a result, bets for a quarter-point increase in U.S. rates later on Wednesday have decreased to less than 6% as of right now from 21% the day before.

While it was sufficient to push the EUR/USD over 1.0800, it wasn’t sufficient to sustain it there given the likelihood of a hawkish pause.

The euro fluctuated slightly between Tuesday’s high of $1.08235 and today’s price of 1.0791. On Thursday, the European Central Bank will make a policy decision; a rate increase of a quarter percent is widely anticipated.

Sterling fell 0.08% to $1.2602 after rising 0.8% the previous session to reach its highest level since May 11 at $1.2625.

The dollar dropped to 140.02 yen, down 0.16%. Despite the weak U.S. inflation statistics, it increased on Tuesday to its highest level since June 5, and the Bank of Japan was expected to maintain its ultra-accommodative policy settings on Friday.

After reaching its highest level since May 10 on Tuesday at $0.6807, the Australian dollar was unchanged at $0.6768.

The People’s Bank of China’s Tuesday move to lower the seven-day reverse repo rate for the first time in ten months provided extra support for the Australian dollar. Australia sends many of its natural resources to China.

The next rate change might occur as soon as this Thursday, when the central bank is scheduled to roll over loans under the medium-term lending facility (MLF) totaling 200 billion yuan ($27.93 billion).

In off-shore trading, the yuan slightly declined and reached 7.1785 per dollar for the first time since November 29.

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