The dollar rose above 121 yen after China’s central bank cut interest rates today in an effort to cushion a deepening economic slowdown in its economy. The news of further stimulus in the world’s second largest economy could increase the likelihood of a December Fed rate hike. This caused the dollar to rise against most if its major counterparts.
The PBOC (People’s Bank of China) reduced its benchmark one-year lending rate by 25 basis points to 4.35% from 4.6% effective Saturday, the sixth such rate cut since last November. Meanwhile, the one-year deposit rate will drop to 1.5% from 1.75%. The reserve requirement ratio (RRR), the amount of reserves banks must hold, was also cut, for the fourth time this year, by 50 basis points to 17.5% and applicable to most large banks.
The dollar’s strength further weakened the euro, which was already under pressure since ECB President Mario Draghi signaled the ECB’s willingness for more easing in December at a press conference on Thursday. Despite a rise in the Eurozone composite PMI, as well as better-than-expected manufacturing and services PMI, the euro extended its decline today.
The single currency fell to a two-month low of 1.1017. This comes after a sharp 2% drop on Thursday after Mario Draghi caught the market by surprise with his strong hints for additional monetary easing in December.
Sterling also fell against the broadly stronger dollar to drop out of the lower consolidation rage, reaching 1.5340.
The Canadian dollar weakened after the release of disappointing Canadian inflation data. The headline CPI number for September declined to -0.2% from 0.0% month-on-month, while the yearly change ticked lower to 1.0% from 1.3% in August. As a result, the USDCAD pair rose to 1.3197, the highest since October 2.
Oil and gold prices fell due to the stronger dollar. After a choppy rally, gold fell to 1158.84. Crude fell below $45.00.