The dollar remained relatively stable against the euro and the yen on Thursday, but experienced a decline against the Australian dollar and the yuan due to positive domestic job data and Chinese monetary policy adjustments, respectively. The dollar is poised to record its first weekly gain in nearly a month against a basket of currencies, primarily due to its strength against the pound, which has seen a 2.3 percent depreciation this week following reports of cooling UK inflation.
The Australian dollar stood out as the top performer, surging by as much as 1.1 percent after employment figures surpassed expectations for the second consecutive month in June. This positive data has left the possibility open for additional interest rate hikes from the Reserve Bank of Australia.
Conversely, the Chinese yuan experienced an increase in value after Beijing relaxed a regulation that permits companies to raise funds internationally. Additionally, major state-owned Chinese banks were reported to have sold dollars on the offshore market.
While the dollar index remained relatively unchanged against a basket of currencies, it maintained close proximity to its 15-month low for the week. According to Kit Juckes, an FX strategist at Societe Generale, individual currency reactions to data are likely to be volatile at present due to ongoing debates about the global rate cycle and expectations for interest rate decisions by various countries.
The Australian dollar ended the day with a 0.95 percent increase at $0.6835, and the New Zealand dollar received a boost in sympathy, rising 0.3 percent against the dollar to $0.6284.
In an effort to stimulate capital inflows and relieve downward pressure on the yuan, China announced that it would not make any changes to its lending benchmarks. Furthermore, the central bank disclosed an increase in the cross-border financing ratio, which determines the maximum proportion of net assets that domestic firms can borrow from overseas markets. This move allows Chinese companies to access funds from international sources.
As a result, the dollar experienced a 0.65 percent decrease against the offshore yuan, leading to a strengthening of the yuan to 7.186 per dollar.
Meanwhile, sterling encountered its fifth consecutive daily loss in the broader currency market, marking its longest stretch of decline since the previous autumn. This drop was in response to British inflation data from Wednesday that fell short of market expectations. Consequently, investors have adjusted their predictions for the amount of potential interest rate hikes by the Bank of England. Money markets indicate that a rise above the current 5 percent to 6 percent is now highly unlikely.
The pound ended the day with a 0.3 percent decrease at $1.2905. Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia, noted that market expectations for rate hikes by the Bank of England have become more realistic.
The euro remained unchanged at $1.120 for the day as investors shifted their focus to the upcoming European Central Bank (ECB) policy meeting scheduled for next week. ECB policymakers have recently adopted a more dovish stance. Yannis Stournaras, a governing council member, became the latest to suggest that the possibility of rate increases beyond the anticipated 25 basis points in July is uncertain.
Lastly, the Japanese yen gained strength, resulting in a 0.2 percent decrease in the dollar/yen currency pair, which traded at 139.44.