EUROPEAN MARKET

Yen, Dollar May Extend Rise as Shares Fall After China Drains Cash


US DOLLAR, STOCKS, PBOC, YEN, BIDEN, FED, IMF – DISCUSSION POINTS:

  • US dollar and Yen on the rise, stocks on the downside as China pulls US $ 12 billion from the banking system
  • A potential delay, a downscaling of the Biden stimulus package could also have hurt
  • IMF Global Economic Outlook Update, U.S. Consumer Confidence Data Focused

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A risk-free tone prevailed in the trading hours of the Asia-Pacific region. The defensive-minded US dollar and Japanese yen rose as their sentiment-driven Australian and New Zealand dollars fell alongside cyclical stocks and commodities including copper and crude oil.

Gold price This slowed as the unfavorable backdrop weighed on bond yields – which are generally favorable to unpaid bullion – even as the greenback climbed. This led to conflicting catalysts for the anti-fiat metal, leaving it to mark time in familiar territory below the $ 1,900 / oz figure.

The surprise decision by the People’s Bank of China to drain CNY 78 billion (US $ 12 billion) from the banking system through open market operations likely contributed to this bad mood. PBOC adviser Ma Jun cited the risk of fomenting asset bubbles as the impetus behind the action.

A possible delay in US President Joe Biden’s $ 1.9 billion stimulus package may have helped. Senate Majority Leader Schumer said the effort might not be delivered until mid-March. Meanwhile, Biden said he was open to negotiating the size of the package.with Republicans, who can see it shrinking.

US dollar and yen rise, Australian and New Zealand dollars fall with equities as China drains cash

Chart created with TradingView

Looking ahead, the IMF will publish an update of its World Economic Outlook. This could lead to a downgrade in global growth forecasts, echoing the slowdown in activity in recent months as the world struggles to contain the Covid-19 pandemic. Indeed, the return to foreclosure has hit most of the major economies.

This could amplify the downward trend in risk, especially against a backdrop of cooling confidence in the prospects for short-term fiscal stimulus. Fears that the Fed could signal unease over the recent rise in inflation expectations – capping opportunities for further monetary support – could also hurt. S&P 500 futures point lower.

The Conference Board’s measure of US consumer confidence is making headlines. Sentiment is expected to remain broadly unchanged in January after dropping in the previous two months. However, a recent downgrade in US data results from benchmark expectations could pave the way for disappointment.

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— Written by Ilya Spivak, Chief Strategist, APAC on DailyFX.com

To contact Ilya use the comments section below or @IlyaSpivak on Twitter



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