Amid the calmness prevailing in the markets ahead of the G3 central bank meetings, the FX market’s attention has once again shifted towards China.
Having failed to meet investor expectations this year, China’s economy is anticipated to receive a boost following the announcement of ‘counter-cyclical’ measures by China’s Politburo yesterday.
These measures come after a series of support actions taken over the past few weeks, including easing restrictions in the mortgage sector, promoting car and electronics purchases, and potentially aiding local governments burdened with debt.
While none of these initiatives have been groundbreaking so far, optimistic market participants hope that the Politburo’s new directive will translate into significant stimulus at the State Council level.
Interestingly, the announcement of these measures during the European session yesterday had little impact on USD/CNH, but Asian investors have latched onto the news, leading to a 0.6% increase in the renminbi’s value during this European morning. Chinese equities are also showing promising performance.
However, history has shown that such short-term trends may fizzle out, as seen with previous prospects of China stimulus, yet they could offer mild support to emerging market and commodity currencies throughout the session.
Despite these positive signals from China, caution is advised against fully embracing a ‘risk-on’ rally in Rest of World (RoW) currencies due to the weakness observed in the European economy.
Furthermore, the upcoming FOMC meeting is likely to see the Federal Reserve maintaining its monetary tightening stance,
Looking at the US data releases for today, they may not be of top-tier importance, but there is a consensus anticipating a decent uptick in the July consumer confidence reading.
Both in the US and the UK, there is a growing sense that consumers have been coping with higher interest rates relatively well, which could diminish the case for any early easing cycles.
Considering these factors, it is expected that DXY will trade within a tight range of 101.00 to 101.50 leading up to tomorrow’s Fed meeting.
Market commentary from Luca Santos, currency analyst at ACY Securities
