The Chinese yuan surged to its highest level against the U.S. dollar in 16 months on Tuesday following the announcement of new stimulus measures by the central bank of the world’s second-largest economy.
The greenback continued to decline against other major currencies after disappointing consumer data. Beijing’s latest strategy involves a proposed 50 basis point reduction in banks’ reserve requirement ratios, injecting additional funds into the economy, and providing relief on mortgage repayments for households.
The Chinese yuan appreciated by 0.20% against the U.S. dollar, trading at 7.017 per dollar after hitting 7.0156 earlier in the trading session. Marc Chandler, the chief market strategist at Bannockburn Global Forex in New York, commented on the positive market response, stating, “It hit all the things that people wanted to see – more support for the housing market, lower interest rates, reserve rate cut, and that support for the stock market.” However, he expressed skepticism about whether the fundamental challenges were effectively being tackled.
Meanwhile, the dollar index decreased further following the release of economic data by the Conference Board, revealing an unexpected decline in U.S. consumer confidence in September. The Dollar Index dropped by 0.44% to 100.49, on track for its most significant daily percentage decrease in two weeks. This decline comes after three consecutive weeks of the dollar weakening due to expectations of a rate cut from the Federal Reserve, which indeed implemented a larger than anticipated 50 basis point cut the previous week.
