Dollar falls for a third day on rate pause bets

Mae Love
January 10, 2019

This, along with a 100 basis point cut in China's bank reserve requirement ratios and comments from Fed Chair Jerome Powell that the US central bank would be flexible in its approach in 2019, has been the main driver for the recovery.

Fed Chairman Jerome Powell (pic) has said the Fed is not on a preset path of rate hikes and will be sensitive to the downside risks markets are pricing in. It dipped 0.1 per cent against the yen and eased marginally versus the euro and sterling in early Asian trade.

Palladium, meanwhile, slipped 0.1 per cent to $1,298.49 an ounce, but was still in the vicinity of the record high of $1,313.24 touched in the previous session. FTSE 100 Index futures gained 0.1 percent.Japan's Topix index rallied 2.8 percent at the close.

"The newsflow we have seen since Friday has lifted sentiment", said Michael McCarthy, chief markets strategist at CMC Markets in Sydney.

Asian markets rallied Monday after a blockbuster performance on Wall Street as United States jobs data beat forecasts and the head of the Federal Reserve hinted at a slower pace of interest rate hikes.

CHINA'S yuan headed for its biggest gain against the dollar in a month, unperturbed by the central bank's monetary easing as the country's economy slows.

"The market is reconsidering its expectations for Fed rate hikes and as the expectations have been scaled back gold prices have been able to edge higher", said Suki Cooper, precious metals analyst at Standard Chartered Bank.

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Markets had already gone much further to price in a major chance of a cut in rates this year, and some of that exuberance was tempered by Powell's emphasis on the word "patient" in his speech on Friday.

However, few analysts still see scope for the Fed to raise rated in 2019.

Expectations of no further rate hikes this year is likely to keep the greenback under pressure. The U.S. dollar softened, with the WSJ Dollar Index, which measures the dollar against a basket of 16 of its peers, down 0.2%. The move frees up $116 billion for new lending as it tries to reduce the risk of a pronounced fall in the pace of economic growth. Apple Inc. last week cut its revenue outlook for the first time in nearly two decades, citing weakness in China's economy as one of the reasons.

The People's Bank of China said on Friday it would cut the amount of cash lenders must hold as reserves.

US officials are meeting their counterparts in Beijing this week for the first face-to-face talks since US President Donald Trump and Chinese President Xi Jinping agreed in December to a 90-day truce in a trade war that has roiled global markets.

Taipei surged more than two percent and Manila was up 1.5 percent with Jakarta 0.7 percent up. South Korea's Kospi climbed 1.3%, Australia's S&P/ASX 200 benchmark rose 1.1% and Hong Kong's Hang Seng Index rose 0.8%.

After Friday's announcement of two cuts totaling 1 percentage point to Chinese banks' reserve requirement ratios, Mr. Lu expects the ratios to be reduced by another 1.5 percentage points this year.

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