By Ray Wee and Linda Pasquini
LONDON/SINGAPORE (Reuters) – The euro edged up against the dollar on Wednesday while the yuan hit its strongest level in more than a year as China’s aggressive stimulus package provided the latest boost to risk appetite.
The US dollar – the traditional safe-haven currency – came under pressure after China’s aggressive stimulus moves on Tuesday fuelled bets on another big US interest rate cut in November, adding to headwinds for the greenback.
Despite weak German economic data and concerns over the French budget, the euro has held up “very well” against the dollar this week, said Jane Foley, chief foreign exchange strategist at Rabobank.
The euro’s resilience was partly driven by the realization that a better outlook for Chinese demand could find its way to Germany and then to Europe, she said.
The euro rose 0.06 percent to $1.1187, heading towards a 13-month high of $1.1201 hit in August.
The Australian and New Zealand dollars retreated after hitting multi-month highs earlier in the session, as Chinese stimulus was seen as a good sign for the two countries’ exports.
“Given the financial market reaction, these announcements were actually bigger than the market expected,” said Carol Kong, currency strategist at Commonwealth Bank of Australia, noting that China’s stimulus measures have particularly benefited currencies that are strongly linked to the Chinese economy, such as the Australian and New Zealand dollars.
Data on Wednesday showed Australian domestic consumer prices slowed to a three-year low in August, while core inflation hit its lowest since early 2022, weighing on the pound, which traded at $0.6882 after peaking at $0.6908 in early Asian trading, its highest since February 2023.
The pound rose to a nine-month high of $0.63555, before retreating to $0.6318.
Global markets enjoyed the impact of China’s latest supportive measures announced on Tuesday, ranging from massive interest rate cuts to aid for the stock market.
In line with its wide-ranging easing measures, the People’s Bank of China also on Wednesday cut its medium-term lending rate to banks to 2.00% from 2.30%.
Sterling rose to a 16-month high of 7.0012 against the dollar while its external unit briefly strengthened above the key psychological level of 7 against the dollar and peaked at 6.9952 against the dollar.
“The momentum driving the yuan should take cues from Chinese equity markets as an indicator of sentiment,” said Christopher Wong, currency strategist at OCBC.
Elsewhere, the pound fell 0.2% to $1.33835. It had earlier risen to a level not seen since March 2022 at $1.343, supported by expectations of less aggressive interest rate cuts from the Bank of England this year than the Federal Reserve.
Markets now price in a 59.1% chance of a 50 basis point rate cut at the Fed’s next policy meeting, up from just 37% a week ago, according to the CME FedWatch tool.
U.S. consumer confidence fell unexpectedly in September, data showed Tuesday, amid growing concerns about the health of the labor market.
“Consumers remain pessimistic about the economy,” Wells Fargo economists said in a note.
“While we expect there to be a number of reasons why households are more pessimistic, the slowdown in the labor market remains at the forefront of our minds.”
Against a basket of currencies, the dollar was last trading at 100.43.
Gold fell more than 0.5% in the previous session, its biggest daily percentage decline in a month.
The yen fell 0.56% to 144 yen per dollar.
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