Dollar moves, risk-sensitive currencies boosted by China optimism By Reuters

By Ankur Banerjee

SINGAPORE (Reuters) – The dollar faltered on Friday, poised for a fourth straight week of declines, as investors weighed U.S. data to gauge the pace of interest rate cuts, while China’s wave of stimulus kept currencies sensitive at risk.

Data on Thursday suggested the US labor market remained fairly healthy, while other reports showed corporate profits rose at a more robust pace than initially thought in the second quarter, highlighting an upbeat economic outlook.

The dollar, however, remained on the back foot as traders priced in 73 basis points of easing for the rest of the year, with a 51 percent chance of another outsized half-percentage-point cut, according to CME Group’s FedWatch (NASDAQ:) Tool.

The Federal Reserve recently signaled a shift in focus away from inflation and toward keeping the labor market healthy, offering a larger-than-usual 50 basis point interest rate cut last week.

which measures the greenback against a basket of currencies including the yen and euro, was last at 100.67, not far from the 14-month low of 100.21 it hit on Wednesday. The index fell 0.06% this week, its fourth straight week of declines.

The euro was steady at $1.11687, just below the 14-month high of $1.1214 it hit on Wednesday.

Ryan Brandham, head of global capital markets for North America at Validus Risk Management, said the data indicated the US economy is growing at a strong pace and while the labor market is slowing, market fears of a sharper recession it might be exaggerated.

“This suggests a more cautious approach to interest rate cuts, prioritizing a balance between the Fed’s hiring mandate and keeping an eye on inflation risks.”

Investors will be watching the personal consumption expenditure price index due out on Friday, but analysts do not expect the data to materially change market prices for US rates unless there is a big miss.

Sterling was a shade lower at $1.33975 but remained close to a 2½-year high hit this week as risk appetite was boosted by a raft of Chinese stimulus such as be reducing the amount of cash banks must hold as reserves by 50 basis points.

The risk-sensitive Australian and New Zealand dollars also held close to multi-year highs on China’s stimulus plans.

It was last at $0.6889, nearing the 18-month high it hit on Wednesday. The latter reached $0.6321, close to its nine-month high. (AUD/)

On Thursday, China’s leaders pledged to support the ailing economy with “forced” interest rate cuts and fiscal and monetary policy adjustments, fueling expectations for more stimulus.

The remarks, which included guidance for the government to support household consumption and stabilize the troubled housing market, came in an official reading of a monthly meeting of top Communist Party Politburo officials.

ING economists said the comments at the Politburo meeting confirmed that the authorities are shifting gears in their efforts to stimulate the economy and stabilize confidence.

“Holding the meeting in September rather than waiting until the normally scheduled meeting in December is itself a signal that the authorities are willing to take more urgent action to reach the 5% growth target,” they said in a note.

Meanwhile, the yen hit a more than three-week low of 145.52 per dollar in early trade as Japan’s ruling party holds one of the most unpredictable leadership contests in decades on Friday.

Data on Friday showed that core inflation in Japan’s capital matched the central bank’s 2 percent target in September, a sign that the economy is making progress in meeting the criteria for the next interest rate hike.