US Dollar gets respite as China eases currency war fears
Frankfurt (Aug 13) The dollar rose from a one-month low against a basket of major currencies on Thursday as the yuan's fall slowed, easing worries that China was trying to sharply devalue its currency to gain competitive advantage.
Having tumbled some 3 percent against the greenback since Tuesday in an unprecedented fall, the yuan CNY=CFXS continued to weaken slightly on Thursday but China's central bank said there was no basis for further depreciation.
The decision to devalue China's currency, also known as the renminbi, by pushing its official guidance rate down 2 percent triggered fears of a "currency war" and sent shockwaves through global financial markets.
Currency investors who had held euro-funded positions in the yuan and other riskier emerging market currencies responded by buying back the single currency, driving it to a one-month high of $1.1215 EUR= on Wednesday. But it was half a percent down on the day at $1.1107 in a calmer market on Thursday.
"The market has started to settle a bit (but) there's still a lot of uncertainty about how far the value of the renminbi will fall and how far should it fall given the slowdown in the economy," said Rabobank currency strategist Jane Foley in London.
Banking sources said the People's Bank of China had stepped up its intervention in yuan trading in a bid to stabilize exchange rates.
The Chinese move also drove investors to push back their expectations of when the U.S. Federal Reserve would raise interest rates, helping drive the dollar index to a one-month low .DXY of 95.926. But it pulled away from that trough on Thursday, up 0.3 percent at 95.593.
U.S. retail sales data due at 1230 GMT (0830 EDT) will be closely watched. ECONGB
"The U.S. clearly needs to watch the global economy and China, but ultimately if we get a very strong release today, market expectations for a September interest rate hike will probably bounce right back," Foley said.
Against the safe-haven yen, the dollar rose 0.3 percent to 124.56 JPY=, although it remained below a two-month high of 125.28 yen set on Wednesday.
"If risk-off type of trading recedes that should help support the dollar against the yen," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
Source: Reuters
