Yuan strengthens as Biden-Xi seek reset; dollar waits for data
The yuan scaled a five-month high in Asia on Tuesday as traders welcomed dialogue between the U.S. and Chinese presidents, while the dollar held near a 16-month peak against the euro ahead of U.S. retail sales data that could influence the outlook for interest rates.
Calling U.S. President Joe Biden an “old friend,” his Chinese counterpart Xi Jinping said their countries must increase communication and cooperation - remarks that had markets hoping cordiality could lead to a reduction in tariffs.
Support for riskier currencies ebbed as further readouts from both sides showed plenty of differences remain in ties between the world’s two biggest economies, but the yuan was kept supported at 6.3728 per dollar.
It had climbed as far as 6.3666 per dollar.
Euro crosses were also languishing after Monday’s insistence from European Central Bank chief Christine Lagarde that hikes could do more harm than good at this point - a dovish contrast with hawkish hints being dropped by other central bankers.
The common currency’s tumble to $1.1356 on Monday propelled the U.S. dollar index to its 2021 high of 95.595 as well as hitting the euro pretty broadly.
“U.S. retail sales today is the big watch to gauge if demand is resilient amid inflation,” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore. If it is, that could mean more pressure on the Federal Reserve to hike rates sooner.
Another factor keeping moves small in the Asia session was talk that Biden might soon announce his pick for Federal Reserve chair - probably either a reappointment of Jerome Powell or a promotion for Fed Governor Lael Brainard.
“If Powell is chosen, we expect no impact on the dollar. But if Brainard is chosen, we expect a short term fall in U.S. interest rates and the dollar because it is widely believed a Brainard-led FOMC would be more dovish than otherwise,” said Commonwealth Bank of Australia analyst Carol Kong.
Reference: Reuters
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