U.S. Dollar Fell While Yuan Steadied Thanks to PBOC

Major currencies on Tuesday

The U.S. dollar hovered near a five-month low on June 1, as investors waited for the euro zone as well as a U.S. manufacturing survey. Meanwhile, the yuan steadied after the People’s Bank of China (PBOC) took steps to limit its appreciation. 

China’s yuan was steady after officials ordered banks to increase their foreign exchange holdings. This way authorities would like to limit the fast yuan appreciation. 

The offshore yuan stood at 6.3726 flat on the day. It crossed the key psychological 6.40 level last week. The yuan touched a new three-year high of 6.3524 on Monday. 

Analysts stated that although the PBOC’s move would slow the pace of yuan’s strengthening versus the greenback, it was unlikely to stop it completely. Fundamental pressures that encouraged a stronger renminbi in 2020 remain in place. The central bank’s measures will not prevent global investors from easily obtaining cheap foreign exchange abroad. They will be able to continue investing in higher yielding renminbi bonds. 

The country’s central bank is expected to withdraw just $20 billion worth of liquidity from the system. 

The dollar index fell below 90 in early European trading, having hit as high as 90.447 several days ago. A measure of U.S. inflation closely watched by the Federal Reserve posted its biggest annual rise since 1992. That factor helped to boost the dollar index on Friday. The index dropped 0.3% on Monday in a market thinned by U.S. and British holidays. 

Fed officials, led by Chair Jerome Powell, said several times that they expect price pressures to be temporary and monetary stimulus to stay in place for some time. Nonetheless, investors are wary that a strong pandemic recovery could force the Fed’s hand.

Dollar, pound, and other important currencies  

Australia’s central bank kept its cash rate at record lows and reiterated its lower-for-longer policy stance. But the Australian dollar was still up around 0.5% versus the greenback, at 07:39 GMT, at 0.77625.

The New Zealand dollar gained 0.1% at 0.72845. The country’s central bank surprised markets last week by hinting at a future interest rate hike. 

The British pound reached a three-year high of $1.425 during the Asian session. At 07:40 GMT, the pound was up 0.1% on the day at $1.42315.

The Canadian dollar was close to its best result in six years, up 0.3% having strengthened for four months in a row. 

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