USD Gains After China Rate Cut Announcement

Stocks, oil prices and safe-haven bond yields rose on Tuesday as a tentative market rebound picked up pace after China cut interest rates and banks’ reserve requirements to kick-start its wavering economy.

The dollar motored ahead against most major currencies, rising 1.4 percent against the yen and 0.65 percent against its currency basket as the stimulus boost to the world’s number two economy gave impetus to the case for a near-term interest rate hike in its biggest.

Global markets were pummeled on Monday, with Chinese shares falling 8 percent, prompting investor calls for remedial action from authorities that grew louder overnight after the Shanghai Composite Index slumped a further 8 percent.

Economists said Tuesday’s response – a 25 basis point cut in key rates and 50 bps off the reserve requirement rate for large commercial banks – sent a clear signal that Beijing, which has stepped in several times this year to keep China’s high-powered growth on track, was still willing to intervene.

But as asset prices eased back following the initial euphoria, some questioned whether the measures would help.

“Investors have been waiting for them to act and they have,” said Kallum Pickering, senior economist at Berenberg.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza