China Raises Reserve Requirement for FX, Stemming the Yuan’s Rise
- * After verbal attempts and signals from the fixing, the PBOC took stronger action to slow the yuan’s ascent by raising the reserve requirement on foreign exchange by 2 percentage points to 7%.
- * The foreign exchange market is quiet with the UK and US on holiday today. The greenback is narrowly mixed. The Australian dollar stands out with modest gains ahead of tomorrow’s RBA meeting.
- * China’s PMI shows the recovery is turning into a stable expansion.
- * Spain, Italy, and German states have reported harmonized CPI figures for May. There is a small upside risk to tomorrow’s EMU aggregate report, where the median (Bloomberg’s survey) sees a 0.2% rise on the month and a 1.9% year-over-year rate.
- * After four inconclusive elections in two years, it appears a new coalition may be forged in Israel without Netanyahu.
US and UK markets are closed for holidays today, contributing to the rather subdued price action today. The MSCI Asia Pacific Index rallied two percent last week, the most in three months, and most markets began off the week with modest gains. Japan, Australia, and Singapore, for notable exceptions. Europe’s Dow Jones Stoxx 600 took a seven-day advance into today’s action and is struggling to extend it. US futures have edged slightly higher.
European bond yields have edged higher.
The dollar is little changed against the major currencies. Outside of the Australian dollar, which is about 0.3% higher, around $0.7735, the other major currencies are +/- 0.15%. Emerging market currencies are mostly firmer, led by the Turkish lira, which was helped by a stronger than expected Q1 GDP (1.7% quarter-over-year and 7% year-over-year). The JP Morgan Emerging Market Currency Index is extending its advance for the fourth consecutive session.
Gold is holding above $1900, while oil is firm, and July WTI is extending last week’s 4.3% rally as it tries to solidify a foothold above $67 ahead of tomorrow’s OPEC+ meeting. Industrial commodities, such as copper, iron ore, and steel rebar have moved higher to build on the recovery seen at the end of last week.
Bannockburn Global Forex