Euro slips further on gloomy data; China’s yuan surges

THE euro fell for a fifth successive session on Tuesday (Jul 25) as evidence of a slowdown in Europe builds. Meanwhile, China’s yuan strengthened after the country’s leaders pledged to step up policy support for the flailing economy.

Markets have plenty more to watch this week. The US Federal Reserve concludes a rate-setting meeting on Wednesday, followed by the European Central Bank (ECB) a day later, and the Bank of Japan (BOJ) on Friday. Heavyweight companies will also post earnings, with reports from Alphabet and Microsoft due on Tuesday.

The euro was last 0.15 per cent lower on the day at US$1.10455, down 2 per cent from its 17-month high of US$1.1276 hit a week ago.

Monday’s purchasing manager indices (PMIs) came in below expectations for the eurozone as a whole. On Tuesday an ECB survey showed demand for loans in the eurozone hit a record low in the second quarter; separate data showed deterioration of business confidence in Germany this month.

“It may be that tighter credit conditions are starting to bite,” Nomura analysts said of the German confidence data. “The ECB will be closely monitoring this because it would indicate that its policy hikes are starting to have the intended effects.”

Anything other than a 25-basis-point increase at Thursday’s ECB meeting would come as a major surprise, but traders have been trimming expectations of a further rate hike later in the year, particularly after Monday’s PMIs.

Earlier on Tuesday, China’s yuan firmed by more than 0.5 per cent in both the onshore and offshore markets as investors cheered comments at the closely watched Politburo meeting, though many were still seeking specific details on greater stimulus measures.

The yuan traded offshore was last at 7.1455 per US dollar and in the onshore market it was at 7.147 per US dollar. Chinese stocks, especially property names, also surged.

“Overall, the sheer range of issues that the meeting touched upon goes beyond what the markets had anticipated,” said Tommy Xie, head of Greater China research at OCBC.

“While the sweeping breadth of the topics was appreciated, the execution and depth of these policies will be the real test.”

Also propping up the yuan were Chinese state-owned banks selling US dollars to buy yuan in both onshore and offshore spot markets on Tuesday, sources told Reuters.

The positive sentiment from China lifted the Australian dollar, often used as a liquid proxy for the yuan, which rose 0.4 per cent to US$0.6766.

The yen remained under pressure at 141.40 per US dollar. The Japanese currency struggled to recover from heavy losses on Friday after a Reuters report that the BOJ is leaning towards keeping its yield curve control (YCC) policy unchanged at this week’s policy meeting.

“(BOJ) governor (Kazuo) Ueda has held his cards close to his chest, seemingly unpersuaded by the recent run-up in Japanese prices and especially workers’ wages, and he has dropped few hints about an impending YCC tweak,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management.

Back in Europe, the pound rose 0.12 per cent to US$1.2840, its first day of gains after seven straight sessions of losses. That was the longest such streak since March 2020.

The Swiss franc was steady at 0.8692 per US dollar.