© Reuters. FILE PHOTO: U.S. Dollar and Chinese Yuan banknotes are seen in this illustration taken January 30, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
By Saqib Iqbal Ahmed
NEW YORK (Reuters) -The U.S. dollar edged higher against a basket of currencies on Tuesday, nearing a two-month peak touched last week, as traders awaited the Jackson Hole Symposium later in the week.
The – which measures the currency against six major counterparts – was up 0.3% at 103.58. The index was sitting just shy of the two-month high of 103.68, reached last week as worries over China’s economy and bets U.S. interest rates will stay high lifted the greenback.
“Right now the world is watching China with baited breath waiting for further stimulus measures,” Helen Given, FX trader at Monex USA in Washington, said.
“It would be too strong to even call China’s economic recovery ‘sputtering’ at this point; indications are those of an economy in contraction, and this in turn is keeping riskier assets depressed,” she said.
Riskier assets took a knock last week and U.S. Treasury yields soared to near 16-year peaks as investors fretted over China’s slowing economic growth and traders geared up for U.S. interest rates to remain higher for longer.
Traders are keeping an eye on a summit of BRICS major emerging economies – Brazil, Russia, India, China and South Africa – underway in Johannesburg for any news on Chinese stimulus.
“We’ll be looking ahead today to any news from the BRICS summit on Chinese stimulus measures as these could reverse global risk tone, but markets will likely need some concrete announcement to really turn the tide,” Monex’s Given said.
Overall moves in currency markets were expected to be limited ahead of a speech by Federal Reserve Chair Jerome Powell at the Fed’s central bank symposium at Jackson Hole, Wyoming, set for Aug. 24-26.
“So much depends on what Powell says about whether rates will remain higher for longer,” said Fiona Cincotta, senior markets analyst at City Index in London, referring to the dollar outlook.
The yen remained under pressure as traders watched for any signs the Japanese government was ready to intervene to prop up the currency, as it did last year.
The dollar was 0.22% lower against the yen, but not far from the 9-month high touched last week.
“My expectation still sits at that 147 mark. Verbal cues last week from the bank of Japan provided a temporary breather for the currency, but if JPY can’t hold its ground I still see a high potential for intervention,” Monex’s Given said.
China’s battered yuan briefly firmed to a one-week high before weakening again as worries about the economy continued to weigh on the currency.
The Chinese central bank set the yuan mid-point at 7.1992 per dollar on Tuesday, 1105 pips firmer than Reuters’ estimate, seeking to keep a floor under the currency after its slide to a 9-1/2-month low of 7.349 in offshore trading last week.
Tuesday’s fixing follows shallower and narrower interest rate cuts than markets had expected a day earlier, as stimulus measures continued to underwhelm in the face of property sector turmoil and weakening economic growth.
Britain’s pound slipped 0.2% on Tuesday, taking little solace from a moderate pick-up in risk appetite.
In cryptocurrencies, bitcoin fell 0.48% to $26,000, hovering above the 2-month low hit last week, as overall sentiment in the cryptocurrency market remained bearish.