By Rae Wee and Linda Pasquini
LONDON/SINGAPORE (Reuters) – The euro rose slightly against the dollar on Wednesday and the yuan hit its highest level in more than a year, as China’s aggressive stimulus package provided a further boost to risk appetite.
The U.S. dollar, a established safe-haven currency, came under pressure after China’s aggressive economic stimulus moves on Tuesday, fueling speculation of another significant U.S. interest rate cut in November, further weakening the greenback.
Despite frail German economic data and concerns about the French budget, the euro held up “very well” against the dollar this week, said Jane Foley, senior currency strategist at Rabobank.
She added that the euro’s resilience was partly due to the belief that a better demand outlook in China could spill over into Germany and then Europe.
The euro gained 0.06% to $1.1187, rebounding from a 13-month peak of $1.1201 reached in August.
The Australian and New Zealand dollars weakened after hitting multi-month highs earlier in the session as China’s economic stimulus measures were seen as a good sign for the countries’ exports.
“Judging by the financial market reaction, these announcements were actually larger than the market was expecting,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC:), noting that Chinese stimulus measures have particularly benefited currencies closely linked to the Chinese economy, such as the Australian and New Zealand dollars.
Data released on Wednesday showed Australia’s domestic consumer prices fell to a three-year low in August, while core inflation hit its lowest level since early 2022, pushing the exchange rate to $0.6882 after peaking at $0.6908 earlier in the Asian session, its highest since February 2023.
The price rose to a nine-month high of $0.63555 before falling to $0.6318.
Markets around the world were basking in the glow of the latest wave of Chinese support measures announced on Tuesday, ranging from drastic interest rate cuts to a bailout for China’s stock market.
In line with its broad easing measures, the People’s Bank of China on Wednesday also cut the cost of medium-term loans for banks from 2.30% to 2.00%.
The price rose to a 16-month high of 7.0012 per dollar, while the offshore unit briefly strengthened, breaking above a key psychological level of 7 per dollar to peak at 6.9952 per dollar.
“The yuan’s upward momentum should be measured by sentiment in Chinese stock markets,” said Christopher Wong, currency strategist at OCBC.
Elsewhere, the pound fell 0.2% to $1.33835. It had earlier risen to a level not seen since March 2022 of $1.343, on less aggressive expectations for a rate cut from the Bank of England this year compared with expectations from the Federal Reserve.
According to the CME FedWatch tool, markets are now pricing in a 59.1% chance of a 50 basis point rate cut at the next Federal Reserve meeting, down from just 37% a week ago.
Data released Tuesday showed that U.S. consumer confidence unexpectedly fell in September on growing concerns about the health of the labor market.
“Consumers remain pessimistic about the economy,” Wells Fargo economists wrote in a note.
“While we expect there are many reasons for households to become more pessimistic, the reassuring labor market remains the most important.”
Against a basket of currencies, the dollar last stood at 100.43.
The stock fell more than 0.5% in the previous session, marking its biggest one-day percentage drop in a month.
The yen weakened 0.56% to 144 per dollar.
