© Reuters. FILE PHOTO: Euro banknotes are shown in this illustration taken on July 17, 2022. REUTERS/Dado Rovic/Illustration/
Written by Ray Wei and Elon John
SINGAPORE/LONDON (Reuters) – The euro fell for the fifth consecutive session on Tuesday as evidence mounted of a slowdown in Europe and the pound stable and strengthened after the country’s leaders pledged to intensify policy support for the ailing economy.
Markets have a lot to watch this week as the Federal Reserve wraps up its rate-setting meeting on Wednesday followed by the European Central Bank (ECB) the next day and the Bank of Japan on Friday, as well as earnings from heavyweights. Google subsidiary Alphabet (NASDAQ) and Microsoft (NASDAQ) are both due on Tuesday.
The euro was down in the latest trading of the day by 0.15% at $1.10455, down 2% from a 17-month high of $1.1276 it hit a week ago.
Monday’s purchasing managers’ indexes fell short of expectations for the eurozone as a whole, an European Central Bank survey on Tuesday showed that demand for loans in the eurozone hit a record low in the second quarter, and separate data showed business confidence deteriorated in Germany this month.
“Tighter credit conditions may be starting to have an effect,” Nomura analysts said of the German confidence data. “The ECB will be watching this closely as it will indicate that its own policy increases are starting to have their intended effects.”
Anything other than a 25 basis point increase at the ECB meeting on Thursday would be a huge surprise, but traders have downplayed expectations of a rate hike later in the year, especially after Monday’s PMIs.
Earlier on Tuesday, the Chinese yuan rose more than 0.5% in both onshore and offshore markets as investors welcomed comments at a closely watched Politburo meeting, although many still sought specifics on larger stimulus measures.
The offshore yuan was last traded at 7.1455 per dollar and on the domestic market it was at 7.147 per dollar. Chinese stocks also rose, especially real estate names.
“Overall, the sheer range of issues touched on at the meeting exceeded what markets expected,” said Tommy Zee, head of Greater China research at OCBC.
“While the broad scope of the topics was appreciated, the implementation and depth of these policies will be the real test.”
Sources told Reuters that Chinese state-owned banks also supported the yuan by selling US dollars to buy yuan in the onshore and offshore spot markets on Tuesday.
Positive sentiment from China lifted the Australian dollar, which is often used as a liquid proxy for the yuan, which rose 0.4% to $0.6766.
The Japanese yen remained under pressure at 141.40 per dollar, struggling to recover from heavy losses on Friday after a Reuters report that the Bank of Japan (BOJ) is leaning towards keeping its yield control policy unchanged at this week’s policy meeting.
“(BoJ) Governor Ueda has held his cards close to his chest, seems unconvinced by the recent hike in Japanese prices and especially worker wages, and has dropped few hints about an impending YCC adjustment,” said Aninda Mitra, head of Asian macro and investment strategy at BNY Mellon (NYSE::) Investment Management.
Returning to Europe, the British pound rose 0.12% to $1.2840, the first day of gains after seven consecutive sessions of losses, the longest streak of this kind since March 2020, and the Swiss franc settled at 0.8692 against the dollar.