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Forex - Yuan Slips, Dollar Gains as PBOC Loosens Monetary Policy

Published 10/08/2018, 12:37 AM
Updated 10/08/2018, 12:37 AM
© Reuters.  The yuan slipped while the dollar gained on Monday

© Reuters. The yuan slipped while the dollar gained on Monday

Investing.com - The yuan slipped while the dollar gained on Monday as investors assessed the People’s Bank of China (PBOC)’s announcement on Sunday to loosen monetary policy.

The central bank said on Sunday that it lowered the required reserve ratio (RRR) for some lenders by 1%.

The cut will become effective from Oct 15, according to a statement on the central bank’s website.

A total of 1.2 trillion yuan ($175 billion) would be released, of which 450 billion yuan is to be used to repay existing medium-term funding facilities, the central bank said.

The USD/CNY inched up 0.02% to 6.8712 by 12:28AM ET (04:28 GMT) following the news.

“We are not surprised to see the RRR cut given mounting economic growth pressure, sizable seasonal liquidity demand, and weak investor sentiments,” Jerry Peng, a strategist at Citigroup) in Hong Kong, wrote in a note. “We reckon the authorities will step up intervention to support RMB in view of the RRR cut. Overall, we believe the RRR cut should be regarded as a positive move.”

A fall in the yuan generally undermine other emerging currencies as they need to depreciate to keep exports competitive. That in turn supports the safe-haven yen and the dollar.

The U.S. dollar index, which tracks the greenback against a basket of other currencies, gained 0.08% to 95.39.

The dollar was under pressure on Friday after the September jobs report came in lower than expected and 10-year Treasury yields rose to a seven-year high.

The U.S. economy created less jobs than expected in September, but unemployment reached a 48-year low, indicating the economy could be plateauing.

Nonfarm payrolls rose by 134,000 compared to expectations for a 185,000 gain.

Payroll gains for August were revised to 270,000 from the 201,000 initially reported, while July was revised up to 165,000 from 147,000. The unemployment rate fell to 3.7%, a level not seen since 1969. Average hourly earnings, an important number to gauge inflation, rose 2.8% year over year in September.

However, the report did little to alter expectations that the Federal Reserve will press on with plans to raise interest rates again in December and beyond.

"The employment report does not offer any reason to think the labor market is losing any momentum," Kevin Cummins, a senior U.S. economist at NatWest Markets.

"As a result, the Federal Reserve's plan for gradual rate hikes through year end and beyond should remain largely intact."

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