the People’s Bank of China slashed lending rates for the second time in as many weeks, sending the Chinese yuan to a nearly two-year low. Most of the other Asian currencies also went down because investors were worried about the future of Federal Reserve monetary policy in the U.S.
After the People’s Bank of China (PBoC) lowered its benchmark rates for a second consecutive week, the yuan dropped 0.1% to 6.8273 per dollar, its weakest level since September 2020. This comes at a time when the bank is trying to stimulate the economy despite challenges like as COVID lockdowns, a sluggish real estate market, and an impending oil crisis.
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The Chinese government has recently pledged to boost the economy through increased infrastructure spending and the issue of additional debt. China’s economic troubles this year stem from Beijing’s refusal to relax its zero-COVID policy.
As the Chinese economy teetered on the brink of recession in the second quarter, the PBoC’s rate-cutting frenzy has added to worries about its health.
Traders and investors in the broader Asian currency markets were less bullish on Monday as investors were less confident in the Federal Reserve’s plans to raise interest rates for the remainder of the year.
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The value of the yen decreased by 0.4% against the dollar, while the Singapore dollar and the South Korean won each decreased by roughly 0.2%. In combination with falling oil prices, the Malaysian ringgit (MYR) had its poorest performance among Southeast Asian currencies, falling 0.3% to a five-year low.
Futures on the dollar index and the dollar index climbed slightly, but remained near five-week highs reached last week.
Investors are waiting for Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium later this week for further monetary policy clues.
Earlier this month, several hawkish comments from Fed members showed that the bank planned to keep raising rates quickly, even though data showed that inflation in the U.S. had gone down a little bit.
Traders’ opinions on whether the Fed will raise rates by 50 or 75 basis points in September are currently nearly evenly split.
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The central bank of New Zealand has signalled that it will likely raise rates at a rapid pace this year to manage inflation, which has led to a 0.3% increase in the value of the New Zealand dollar. A rate increase of 50 basis points was implemented by the bank only last week.