TOKYO, July 12 (Reuters) - Risk currencies hovered above
their recent lows against the dollar and the yen on Monday, as
fears about slowdown in the global economic recovery appeared to
have subsided for now.
The outlook for U.S. inflation and the speed of the Federal
Reserve's future policy tightening are back in focus ahead of
Tuesday's consumer price data and Fed Chair Jerome Powell's
testimony from Wednesday.
"If we see strong data, the Fed could bring forward their
projection for their first rate hike further from their current
forecast of 2023. That would also mean they have to finish
tapering earlier," said Shinichiro Kadota, senior FX strategist
The euro traded at $1.1868, edging back from its
three-month low of $1.17815 set on Wednesday while against the
yen the common currency stood at 130.73 yen, off
Thursday's 2-1/2-month low of 129.63 yen.
Sterling held at $1.3887 while the Australian
dollar has bounced back from Friday's seven-month low of
$0.7410, even if it traded a little soft through the Asia
session at $0.7472.
Risk currencies slipped earlier last week as investors
curtailed their bets on them, in part as economic data from many
countries fell short of the market's expectations.
Concerns about new coronavirus variants also added to the
cautious mood. Although few investors thought the economic
recovery would be derailed, vulnerable currencies such as the
tourism-exposed Thai baht have been whacked.
The baht is above Friday's low but has lost about
5% against the dollar in a month and on Monday Thailand's
central bank warned the economy may miss its projections as
virus curbs hit growth.
Selling in other risk currencies has tended to subside since
Friday, however, and sentiment has been helped after China cut
banks' reserve requirement ratio (RRR) broadly to underpin a
recovery that is starting to lose momentum.
"We think the larger-than-expected universal RRR cut is
likely to reinforce market expectation that the PBoC is
determined to keep liquidity stable," said Tommy Xie, head of
Greater China research at OCBC Bank.
"It does not mean the start of monetary easing cycle, as the
RRR cut was mainly to support small companies affected by rising
raw material prices."
On Monday, the yuan was a tiny bit firmer at 6.4742 per
dollar and Chinese shares and bonds rose.
Meanwhile, a recovery in risk sentiment hampered the
safe-haven yen. The Japanese currency stood at 110.17 yen per
dollar, off Thursday's one-month high of 109.535.
With the data calendar on Monday relatively bare, many
investors are looking to Tuesday's U.S. consumer price data for
Economists polled by Reuters expect core CPI to have risen
0.4% from May and 4.0% from a year earlier after two straight
months of sharp gains in prices.
Any signs that inflation could be more persistent than
previously thought could fan expectations the Fed may exit from
current stimulus earlier, supporting the dollar against other
Conversely, more benign data could lead investors to think
the U.S. central bank can afford to maintain an easy policy
framework for longer, encouraging more bets on risk assets,
including risk-sensitive currencies.
Cryptocurrencies were little moved, with bitcoin at $34,337
and ether at $2,150.
(Reporting by Hideyuki Sano in Tokyo. Additional reporting by
Tom Westbrook in Singapore; Editing by Jacqueline Wong)