By Rae Wee and Linda Pasquini
LONDON/SINGAPORE (Reuters) -The euro rose slightly against the dollar on Wednesday, while the yuan hit its strongest level in more than a year, as China’s aggressive stimulus package provided the latest shot in the arm to risk appetite.
The US dollar – a traditional safe-haven currency – came under pressure after China’s aggressive stimulus measures on Tuesday fueled bets on another outsized US interest rate cut in November, adding to the dollar’s headwinds.
Despite weak German economic data and concerns about the French budget, the euro has held up “extremely well” against the dollar this week, said Jane Foley, senior forex strategist at Rabobank.
The euro’s resilience was partly driven by the perception that better prospects for Chinese demand could work their way into Germany and into Europe, she said.
The euro rose 0.06% to $1.1187, returning to a 13-month peak of $1.1201 in August.
The Australian and New Zealand dollars retreated after hitting multi-month peaks earlier in the session as China’s stimulus measures were seen as a good sign for the countries’ exports.
“Based on the reaction in financial markets, these announcements were actually bigger than market expectations,” said Carol Kong, a currency strategist at the Commonwealth Bank of Australia (OTC:), noting that China’s stimulus measures mainly benefited currencies with strong ties to the Chinese economy, such as the Australian and New Zealand dollars.
Data on Wednesday showed Australia’s domestic consumer prices slowed to a three-year low in August, while core inflation hit the lowest since early 2022, weighing on the $0.6882 rate after peaking at $0.6908 during the early Asian session, the highest since February 2023. .
The price rose to a nine-month high of $0.63555 before falling to $0.6318.
Global markets were basking in the wake of China’s latest round of stimulus measures announced on Tuesday, ranging from excessive interest rate cuts to support for the Chinese stock market.
In line with its broad easing measures, the People’s Bank of China also cut the cost of its medium-term loans to banks from 2.30% to 2.00% on Wednesday.
It rose to a 16-month high of 7.0012 per dollar, while the offshore unit briefly strengthened above the key psychological level of 7 per dollar and peaked at 6.9952 per dollar.
“Momentum for the yuan should follow signals from Chinese equity markets as a gauge of sentiment,” said Christopher Wong, currency strategist at OCBC.
Elsewhere, sterling fell 0.2% to $1.33835. Yields had earlier risen to a level of $1,343 not seen since March 2022, helped by less aggressive expectations of rate cuts from the Bank of England this year compared to the Federal Reserve.
Markets are now pricing in a 59.1% chance of a 50 basis point rate cut at the Fed’s next policy meeting, up from just 37% a week ago, according to CME’s FedWatch tool.
Data on Tuesday showed US consumer confidence fell unexpectedly in September, amid rising concerns about the health of the labor market.
“Consumers remain downbeat about the economy,” Wells Fargo economists said in a note.
“While we expect there are a number of reasons why households are becoming more pessimistic, the moderating labor market remains a priority.”
Against a basket of currencies, the dollar last stood at 100.43.
The stock fell more than 0.5% in the previous session, the biggest single-day percentage drop in a month.
The yen fell 0.56% to 144 per dollar.
