© Reuters. FILE PHOTO: US dollar banknotes are shown in this illustration taken on March 10, 2023. REUTERS/Dado Rović/Illustration/File photo
Written by Samuel Indyk and Ray Wei
LONDON (Reuters) – The yuan fell towards a seven-month low on Tuesday after China cut interest rates, while the Swedish krona fell to its lowest level since 2009 against the euro on persistent concerns about the real estate sector.
China cut key interest rates for one- and five-year loans by 10 basis points, in the first such easing in 10 months as authorities seek to shore up a slowing economic recovery.
The decision sent the yuan lower, with the local session ending at 7.1744 per dollar, the weakest close since November 28.
The latter was down 0.2% at 7.1827 per dollar, languishing near last week’s low of 7.1916.
“Chinese authorities are concerned about weak growth but are concerned about re-inflating the real estate bubble, so expectations of a significant real estate stimulus may not materialize,” said Chris Turner, ING’s head of global markets.
“The market is moving towards the view that fiscal stimulus may be lukewarm and that is one of the reasons why the renminbi remains weak.”
Elsewhere, the Swedish crown fell 0.4% to its lowest level since 2009 at 11.762 per euro. It was last at 11.759 per euro, close to the 2009 record low of 11.8.
Concerns about the real estate sector have been weighing on the currency, and an expected interest rate hike from the Riksbank next week may add to investor concerns as real estate makes up 80% of household debt.
“The pair (Swedish krona in euro) continues its sharp rally, which is only partly related to data, normal drivers and bad news for the real estate sector,” said Kristin Kundby Nielsen, Analyst at Danske Bank FX.
“Risk-decorated markets, periods of low liquidity, and just trading momentum have added to the weakness of the SEK,” Kundby-Nielsen added.
Price overview
Elsewhere, the Australian dollar fell over 0.8% to a session low of $0.6784, minutes after the latest RBA policy meeting showed the RBA’s decision to raise interest rates in June was “quite balanced.”
“The controversy made it clear to the market that at the next meeting in July, a decision may be made to leave interest rates hanging,” said Yu-na Park Heger, forex analyst at Commerzbank (ETR:).
“The risk of an inflationary surprise is there of course and as a result a July rate hike is not off the agenda yet. Against this backdrop downward pressure on the Australian dollar is likely to be limited for the time being.”
The euro rose 0.1% to $1.0931, supported by a still hawkish European Central Bank after two policymakers said Monday that the bank should err on the side of raising interest rates because the inflation rate could come in higher than the ECB expects.
The British pound fell 0.2% to $1.2799, ahead of UK inflation data on Wednesday and the Bank of England’s interest rate decision on Thursday.
Markets expect the Bank of England to deliver a quarter point rate hike, to be followed by approximately another 125 basis points of tightening until the end of the cycle.
“Until they are certain that inflation is coming down, the BoE may not want to resist market expectations of a rate hike,” said ING’s Turner.
“If this is the case, it is likely that sterling will hold on to its recent gains.”
The US dollar rose to a seven-month high of 142.26 yen although it was last down 0.4% at 141.45.
The Bank of Japan maintained its ultra-easy monetary policy on Friday and the yen came under renewed pressure amid widening interest rate differentials between Japan and other developed markets.
The , which measures the currency against a basket of six others, was unchanged at 102.42.
