The U.S. dollar fell against its Japanese counterpart on Monday, following comments hinting at further appreciation of the Chinese yuan and by proxy, the region’s benchmark, the yen.
China’s Yu Yongding, who heads the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, said yuan appreciation was inevitable over time, but that changes would likely be gradual, according to analysts’ reports citing those comments.
U.S. officials have welcomed China’s initial steps but have stressed in recent comments the need for more reform. On July 21, China dropped a decade-old yuan-dollar peg, a mechanism in place to keep Chinese-made goods more competitive. Since then, net yuan appreciation has been minimal, with the currency trading within a daily band against a basket of the world’s leading currencies.
The comments alone weren’t that newsworthy, analysts said. Rather, they provided the catalyst many in the foreign-exchange market were looking for to trigger dollar selling after the U.S. currency hit a wall of option-related resistance above 116 yen.
The dollar’s probe of this key area last week marked its highest yen level in some two years.
In morning North American trade, the dollar fell 0.2% to 115.64 yen compared to 115.85 yen.
The dollar was a touch firmer against its chief European counterparts Monday, underpinned by ongoing expectations for higher U.S. interest rates.
At the same time, most analysts said the dollar has gotten about all the mileage it can out of interest-rate bets absent fresh data or commentary to suggest the Fed will extend even further its campaign to nudge U.S. rates higher.
Higher rates in the U.S. relative to much of the rest of its industrialized counterparts affords dollar-denominated investments a yield advantage appealing to foreign investors.
Yield plays combined with the repatriation of foreign profits by U.S.-based multinational companies have tended to support to the dollar. Offsetting those inflows are reports that more central banks are lightening up some of their dollar reserves and adding other currencies, primarily the euro.
At last check, the dollar was up 0.1% against Europe’s shared currency; the euro was changing hands tat $1.1942 compared to $1.1945 late Friday.
Euro-dollar has largely consolidated since hitting three-month lows below $1.19 earlier this month.
The greenback nosed up 0.1% against its British counterpart; one pound was worth $1.7670 compared to $1.7681 Friday.
This story was supplied by MarketWatch. For further information see www.marketwatch.com.