US dollar sags before inflation data, yuan weakens on rate cut
THE US dollar fell slightly on Tuesday (Jun 13) as investors awaited US inflation data, while China’s yuan slipped to a six-month low after the central bank lowered a short-term lending rate to boost the economy.
The euro was up 0.37 per cent to US$1.079 on Tuesday, after touching its highest since May 23 earlier in the session at US$1.081.
That helped push the US dollar index, which measures the currency against six peers, down 0.26 per cent to 103.32.
US consumer price inflation (CPI) data is due out at 1230 GMT (8.30 pm Singapore Time) and could influence the Federal Reserve as it starts its two-day policy meeting, with an interest rate decision due on Wednesday.
The US dollar was down in part because the market was “priced for a pause” from the Fed tomorrow, said Jane Foley, head of FX strategy at Rabobank.
The Fed lifted its target rate range to 5 per cent to 5.25 per cent in May, but traders think there is a 77 per cent chance the Fed will hold it steady this week. Traders broadly expect another 25 bp hike in July, after Fed officials hinted at a so-called skip.
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“What’s going to be interesting today is looking at that CPI, especially the core number, because there will be a bit of fine tuning (of market expectations) ahead of the Fed’s meeting,” Foley said.
In Asia, China’s yuan fell to a six-month low after the central bank lowered a short-term lending rate for the first time in 10 months, in a bid to restore market confidence and prop up its stalling post-pandemic recovery.
The onshore yuan bottomed at 7.168 per US dollar, its lowest since last November, and last traded at 7.152.
Its offshore counterpart weakened to a new six-month low of 7.178, before paring its losses slightly.
The cut reflects “growing concerns among policymakers about the health of China’s recovery”, said Julian Evans-Pritchard, head of China economics at consultancy Capital Economics, in a note to clients. “It is likely to be followed by wider easing.”
Sterling jumped on Tuesday after employment data came in much stronger than expected, with wages rising sharply, adding to concerns about inflation.
The pound was up 0.46 per cent at US$1.257 as traders bet the Bank of England would have to raise interest rates further than previously expected. It remained below the one-month peak of US$1.26 hit on Monday, however.
Against the Japanese yen, the US dollar slipped very slightly to 139.57.
The Bank of Japan is due to announce a monetary policy decision on Friday and is expected to maintain its ultra-dovish stance and yield curve control settings.
The Aussie dollar rose more than 0.4 per cent to its highest since May 11 at US$0.679, and was last at US$0.678. REUTERS
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