© Reuters.
Investing.com – The US dollar fell in early European trade on Tuesday, with risk sentiment helped by a cut in China’s short-term lending rate, although upcoming US inflation data and the Fed’s policy meeting added a degree of uncertainty.
At 03:15 EST (07:15 GMT), the greenback, which measures the greenback against a basket of six other currencies, was trading down 0.3% at 102.888, dropping to levels last seen in mid-May. .
The Chinese yuan is declining after the interest rate cut
It rose 0.1% to 7.1548, with the yuan falling to a six-month low after the People’s Bank of China cut the seven-day reverse repo rate by 10 basis points to 1.90% from 2.00%, the first rate cut since the bank scaled back. in August 2022.
This has been taken as a sign that Chinese authorities are determined to maintain a loose monetary policy in a bid to bolster the country’s weak recovery from the COVID blow, boosting risk sentiment globally at the expense of the safe-haven dollar.
Inflation in the United States to signal a halt to the Federal Reserve
Focus now turns to the latest release from the US later on Tuesday, which is expected to show that inflation has subsided a bit in May and could give room for a pause in the rate hike cycle when it announces its rate decision on Wednesday.
Analysts expect prices for May to rise 4.1% over the year, which is a slower pace of growth from 4.9% in April, while they are expected to rise 5.3% for the year, which excludes volatile food and energy from 5.5%.
Pimco is working to reduce the weight of the dollar
The greenback may struggle to appreciate much in the near future, if investment management firm PIMCO’s view is widely spread.
“There’s no guarantee we’re going to lose dollars all the time, but today, (in) our lower dollar position against the G10 and EM (emerging markets),” Andrew Bowles, chief investment officer for fixed income at the $1.8 trillion asset manager, said Monday.
“My guess is on average, we’ll have that over the next two years.”
The euro rises ahead of the European Central Bank’s decision
It rose 0.3% to 1.0793, after confirming at 6.1% y/y for the month of May.
This represents a decline in the annual rate from 7.2% in the previous month but is unlikely to stop another 25 basis point rate hike on Thursday.
Elsewhere, it rose 0.4% to 1.2563, with officials signaling more rate hikes if they remain high.
“It is important that we continue to rely on inflationary momentum risks, and therefore further interest rate increases cannot be ruled out,” Jonathan Haskell, policymaker at the Bank of England, wrote in a column published on Monday. “
It drifted lower to 139.53, with it expected to maintain its ultra-loose monetary policy later this week, while risk-sensitive rose 0.3% to 0.6774.