Dollar retreats after China deflation unleashes drive into risk assets
By Amanda Cooper
LONDON (Reuters) -The dollar retreated on Wednesday after data showed the Chinese economy slipped into deflation last month, which upped the chances for the government to roll out extra stimulus measures and nudged investors into risk assets.
Dollar selling by state-owned Chinese banks helped the yuan rally off a one-month low even as the country slipped into deflation, dealers said. The Chinese central bank's stronger-than-expected exchange-rate fixing at 7.1588 per dollar before the open signalled its discomfort with the yuan's recent declines.
The dollar index — which measures the U.S. currency against the euro, sterling and four other others — eased 0.22% to 102.29, paring some of the 0.47% rise the previous session.
The euro rose 0.3% to $1.09865, while sterling rose 0.16% to $1.27695. European markets gained some respite after equities tumbled the day before after the Italian government announced a surprise 40% windfall tax on banks. The finance ministry subsequently softened its stance, but the initial decision stripped 3.5% off major euro zone lenders' shares
Data on Wednesday showed Chinese consumer prices fell for the first time in more than two years in July. Rather than lifting safe-haven appetite for the dollar, the figures reinforced the view among some investors that the Chinese government might take steps to underpin the economy with monetary stimulus.
«There's still no signs yet from officialdom of imminent support» for the Chinese economy, despite the «protest of sorts against the recent run-up in the dollar-yuan rate» implicit in the strong yuan fixing, said Ray Attrill, head of foreign-exchange strategy at National Australia Bank (OTC:NABZY).
As a result, the dollar index will stay
Read more on investing.com
