The dollar rose on Monday morning in Asian forex exchange. Talks over the latest stimulus measures in the U.S. were struggling. The yuan plunged after the Chinese central bank announced measures to curb the currency’s strength.
The U.S. Dollar Index climbed 0.10% to 93.108 rebounding from Friday’s losses, its biggest in six weeks. Forex investors hoped for Congress to reach consensus on the stimulus measures.
During talks with House of Representatives Speaker Nancy Pelosi on Friday, President Donald Trump proposed a $1.8 trillion package. This was getting closer to the Democrats’ $2.2. trillion proposal.
Trump’s offer however, irked his fellow Republics as many of them were reluctant to add to a growing debt pile. The move is potentially costing his party critical support in the upcoming presidential elections.
As the Nov 3 election draws closer, investors are increasingly betting on Trump’s losing to Democrat rival Joe Biden. Some investors remained doubtful.
Societe Generale director of FOREX Kyosuke Suzuki said, on the whole, the big picture has not changed that much.
The USD/JPY pair climbed 0.01% to 105.60.
The Chinese Yuan
The USD/CNY pair was up 0.40% to 6.7199.
The Chinese currency touched a 17-month high in both onshore and offshore trade on Friday. The yuan has gained more than 6% against the dollar since May. This was driven mostly by the favorable yield differential between China and other major global economies.
The offshore Chinese yuan fell amid the People’s Bank of China’s decision to lower the requirement ratio for financial institutions. That is when conducting some forex forwards trading.
Some investors forecasted that the move would encourage the use of forwards thus monitoring the currency’s strength.
ANZ head of Asia Research Khoon Goh wrote that authorities have not stood in the way of yuan strength. This move, however, could be seen as a sign that they want to slow the pace of appreciation.
Their interpretation is that the purpose of removing the reserve requirement is to encourage firms to hedge. This is in order to manage currency risk.
The note added that it also enhances the FX market structure by making it easier for foreign investors. And that is, in hedging their onshore portfolio investments.
Meanwhile, the AUD/USD pair fell 0.12% to 0.7230 while NZD/USD fell 0.02% to 0.6663. As the stimulus talks stalled, the Antipodean risk currencies saw retreats.
The GBP/USD pair also fell 0.10% to 1.3033 ahead of the European Council meeting on Oct 15-16. The Brexit deal with the U.K. is on its agenda.