US Markets

FOREX-China jitters lift haven currencies; dollar awaits Fed

Credit: REUTERS/MIKE SEGAR

The dollar was pinned below recent highs on Wednesday by a decline in real yields and by trepidation ahead of a Federal Reserve meeting, while other safe-haven currencies were in favour following an unnerving plunge in Chinese equity markets.

By Tom Westbrook

SINGAPORE, July 28 (Reuters) - The dollar was pinned below recent highs on Wednesday by a decline in real yields and by trepidation ahead of a Federal Reserve meeting, while other safe-haven currencies were in favour following an unnerving plunge in Chinese equity markets.

The Japanese yen rose about 0.5% on the dollar overnight to touch a one-week high, while the Swiss franc CHF=EBS and euro also rose a little. Each held on to their gains at the beginning of the Asia session, with the yen JPY=EBS last trading at 109.85 per dollar and the euro EUR=EBS at $1.1819.

The Chinese yuan teetered near a three-month low at 6.5180 per dollar CNH= after logging its worst day since October on Tuesday, while the risk-sensitive Australian and New Zealand dollars also nursed losses as sentiment took a hit. AUD/CNY/

Hong Kong's Hang Seng Index .HSI suffered its sharpest selloff in more than a year on Tuesday amid growing fears about a Chinese government crackdown on tech and other sectors and jitters spilled over into U.S. markets. MKTS/GLOB

"The fall in Chinese markets caused a ripple effect to global sentiment and it was a risk-off session," said Westpac strategist Imre Speizer.

The gains by the yen, euro and franc combined to push the U.S. dollar index =USD lower and it sat at 92.472 on Wednesday. Declining U.S. real yields, which hit another record low at the 10-year tenor overnight US10YTIP=RR also cast a pall over the dollar and the global economic outlook. US/

Sterling GBP= was an outlier and it jumped through its 20-day moving average overnight as traders took reports that Britain was considering opening borders as a signal of further re-opening benefits to come. It last sat at $1.3874. GBP/

Focus turns now to how Chinese markets trade at the open and to investors' positioning ahead of the Fed meeting.

The dollar has enjoyed a month-long rally after a hawkish shift from the Fed in June and markets are waiting to see whether there are more clues this month on the timing of tapering as policymakers face spiking U.S. inflation.

Hints of a faster end to extraordinary policy support could lift U.S. rates and the dollar, while a dovish-sounding Fed might put pressure on the greenback, analysts said. The Fed publishes a statement at 1800 GMT followed by a news conference at 1830 GMT.

Another hawkish surprise is unlikely, Westpac's Speizer said, with investors likely left looking for any shifts in tone or emphasis.

"They've already said they're talking about tapering and they'll say that again. They've already said transitory inflation and they'll say that again," he said. "It'll be subtle changes in the language that cause the reaction."

World FX rateshttps://tmsnrt.rs/2RBWI5E

(Reporting by Tom Westbrook; Editing by Sam Holmes)

((tom.westbrook@tr.com; +65 6973 8284;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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