Dollar softens amid trade optimism, central bank watch, offshore yuan jumps

By Stefano Rebaudo

(Reuters) -The U.S. greenback snapped a six-day rally in opposition to the yen and prolonged a three-day falling streak versus the euro on Monday, as traders welcomed a potential U.S.-China commerce deal and braced for every week full of central financial institution conferences.

The U.S. Federal Reserve wraps up its two-day coverage assembly on Wednesday, and price selections from the European Central Financial institution and the Financial institution of Japan are due on Thursday.

U.S. President Donald Trump mentioned on Monday the U.S. and China had been set to “come away with” a commerce deal. He’s anticipated to fulfill Chinese language President Xi Jinping later this week in South Korea.

The Chinese language offshore yuan rose to a greater than one-month excessive in opposition to the greenback of seven.1028, up 0.28% on the day.

Previous to the market open, the Folks’s Financial institution of China set the official yuan midpoint price at 7.0881 per greenback, the strongest since October 15, 2024, and above a Reuters estimate of seven.1146.

“Folks’s Financial institution of China continued to repair greenback/yuan decrease,” mentioned Chris Turner, world head of foreign exchange analysis at ING, questioning whether or not such a transfer is only a gesture of goodwill forward of Thursday’s Trump-Xi assembly, or an indication that China desires to spice up its home demand.

“Both method, a stronger renminbi is often supportive for world rising market currencies and a gentle greenback adverse,” he added.

China shares closed at their highest level in additional than 10 years on Monday.

“Monday mania returns with world fairness markets greater, bonds down, and gold and the greenback decrease,” mentioned Bob Savage, head of markets macro technique at BNY, earlier than mentioning a potential U.S.-China deal.

The Australian greenback gained 0.65% versus the buck to $0.6557 as indicators of progress in commerce talks bolstered demand for higher-yielding belongings.

EYES ON BOJ AND ECB MEETINGS

The greenback ended a six-session rising streak in opposition to the yen, which has been pressured by the appointment of latest Prime Minister Sanae Takaichi, seen as a fiscal and financial dove. Surging oil costs added additional stress on the forex and different oil-importing friends.

The buck was down 0.20% at 152.59, after hitting 153.26, its highest since October 10, in Asian buying and selling.

A number of analysts anticipate the so-called Japanese fiscal premium – as a consequence of issues about Japan’s authorities spending outlook – to stay elevated and restrict the scope for yen appreciation.

In the meantime, with the ECB anticipated to maintain each its coverage stance and messaging unchanged this week, market consideration will shift to Thursday’s BoJ assembly, the place any hawkish alerts may lend help to the yen.

The BoJ is more likely to debate this week whether or not situations are proper to renew price hikes as worries a few tariff-induced recession ease, although political problems could preserve it on maintain for now.

FED EXPECTED TO CUT BY 25 BPS

With a 25-basis-point Fed price lower lengthy priced in, markets will carefully look ahead to any indicators that the central financial institution could also be getting ready to wind down its quantitative tightening programme (QT).

Barclays strategists mentioned essentially the most market-moving end result can be “a direct finish of QT together with a sign for imminent outright invoice purchases to shore up financial institution reserves.”

They famous that related shifts previously have usually lifted threat belongings, which at the moment are displaying a stronger constructive correlation with the greenback.

The greenback index, which measures the buck in opposition to some main friends, fell 0.18% to 98.77.

“There may be deep consciousness and need to keep away from a repeat of repo market strains witnessed in 2019,” mentioned Erik Weisman, Chief Economist and Portfolio Supervisor of MFS Funding Administration.

“Consequently, the Fed could sign that it’s going to present concrete steering on ending QT in December, with the potential for a shock announcement ending QT even sooner,” he added.

The euro rose 0.15% to $1.1646.

Sturdy euro zone information final week bolstered expectations that the ECB will preserve rates of interest elevated for longer, providing recent help to the one forex.

Surveys confirmed on Monday German enterprise morale rose in October, whereas euro zone corporations remained optimistic about their prospects.

(Reporting by Stefano Rebaudo. Modifying by Muralikumar Anantharaman, Mark Potter and Andrew Heavens)