Dollar a spectator to China news, yen wobbles as rate risks loom
Updated at 0619 GMT
By Wayne Cole
SYDNEY, March 5 (Reuters) –The dollar was steady against the yuan on Tuesday as markets digested policy statements out of China that were short on big stimulus measures, while a rebound in Tokyo inflation seemed to take Japan a step closer to the end of negative interest rates.
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The largest cryptocurrency by market value is up around 57% this year, benefiting fromflows into exchange-traded funds launchedin the United States.
Early news out of China’s National People’s Congress (NPC) contained few surprises,with Beijing sticking with an ambitious economic growth target of 5% and a budget deficit of 3%.
Analysts say meeting the target will be a challenge as a protracted property crisis, low consumption, slow global growth and geopolitical tensions drag on activity.
“There are formidable challenges for the around 5% GDP growth target, in our opinion, as the recovery has been slow almost towards the end of first quarter and private enterprises’ investment confidence remains low as well,” said Redmond Wong, Chief China strategist at Saxo.
Spot yuan CNY=CFXS opened at 7.1950 per dollar and was changing hands at 7.1985, while the offshore yuan CNH=D3 was little changed at $7.2100 asmarkets hoped more concrete stimulus measures would emerge. CNY/
The Japanese yen held steady afterdata showed Tokyo core inflation sped up to 2.5% in February, from 1.8% the previous month. A measure excluding food and energy did slow to 3.1%, but stayed above the Bank of Japan’s 2% target.
“Inflation jumped to well above 2% and will remain around that level for a few months,” by Marcel Thieliant, head of Asia-Pacific at Capital Economics. “Accordingly, we’re sticking to our forecast that the Bank of Japan will hike interest rates into positive territory next month.”
Many analysts expect the BOJ to move negative ratesto zero in April if Japan’s spring wage negotiationsresult in solid pay hikes, which should boost consumer spending. 0#BOJWATCH
The dollar was last at150.44 yen JPY=EBS, having again shied away from resistance around 150.85, which has capped the currency for more than three months now.
A break higher would open the way to November’s top at 151.92, but would also run the risk of provoking Japanese intervention.
Markets currently imply around a 64% chance the Federal Reserve will start cutting U.S. rates in June and ease by around 75 basis points this year. FEDWATCH
Fed Chair Jerome Powell has a chance to update investors on his own outlook when he appears before lawmakers on Wednesday and Thursday.
“We should expect Fed Chair Powell to reiterate patience and emphasize (there is) no hurry to cut rates,” said Christopher Wong, currency strategist at OCBC in Singapore.
“However, these are known knowns and should not affect markets too much unless Powell signals more forceful pushbacks, that could lead to further hawkish re-pricing.”
The euro idled at $1.08515 EUR=EBS, having tested resistance around $1.0866. The dollar index =USD, which measures the currency against six major peers, edged higher to103.87.
The European Central Bank (ECB) meetson Thursday and markets are convinced it will keep rates at 4.0%. Futures imply an 88% probability that cuts will start in June and have priced in 89 basis points of easing for 2024. 0#ECBWATCH
“The persistence of sticky services CPI and signs of services picking up more broadly in survey data suggest that ECB will continue to highlight patience and further maintaining of restrictive policy,” argued analysts at Westpac.
“After holding tests below $1.0800 last week, EUR/USD looks set to test the $1.0900-50 area, the middle its range since late December.”
Sterling eased to$1.2682GBP=D3 ahead of the British budget on Wednesday. Finance Minister Jeremy Hunt has been trying to dampen speculation about big pre-election tax cuts.
Reporting by Wayne Cole and Ankur Banerjee in Singapore; Editing by Sam Holmes and Kim Coghill
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