US dollar climbs as China's yuan-support signal reduces concern

The US dollar rallied from a slump for the first time in seven days, after the People's Bank of China said it would step in to support the yuan if the market got excessively volatile.
The US dollar rallied from a slump for the first time in seven days, after the People's Bank of China said it would step in to support the yuan if the market got excessively volatile. PHOTO: BLOOMBERG

WASHINGTON (BLOOMBERG) - The dollar climbed for the first time in seven days against the euro after China's central bank sought to temper concern that it wouldn't sufficiently support the yuan.

A gauge of the U.S. currency rallied from Wednesday's slump of 0.8 per cent after China's central bank said it will step in when the market is excessively volatile. Futures prices show traders' expectations for Federal Reserve rate-increases have recovered after sliding earlier this week. A report showed U.S. retail sales increased last month, matching forecasts.

"We're kind of hoping that we can go back to normal market conditions and focus on U.S. data and what that means for the Fed," said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. "We are relatively sanguine about the immediate moves in China. I don't think it pushes back the timing" for the Fed, he said.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major peers, climbed 0.4 per cent to 1,208.30 at 8:32 a.m. in New York. It dropped Wednesday to the lowest since July 31.

The dollar advanced 0.4 per cent to US$1.1113 per euro, after declining 2.5 per cent in the previous six days. It climbed 0.2 per cent to 124.49 yen.

There's a 48 per cent probability the Fed will raise its benchmark rate in September, based on the assumption that the effective fed funds rate will average 0.375 per cent after the first increase. That compares with 40 per cent on Tuesday, when China's decision to devalue the yuan led to concern the world's second-largest economy is slowing.

The dollar has climbed against all except the Swiss franc and U.K. pound among 16 major peers in 2015, rising the most versus Brazilian real and the New Zealand dollar. The Bloomberg JP Morgan Asia Dollar Index, which measures a basket of Asian currencies against the greenback, fell 2.1 percent in the past three days, extending its 2015 decline to 4.3 per cent. It dropped to the lowest since July 2009 on Wednesday.

"I am not convinced that the China situation is altering expectations for a Fed rate hike," said Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo.

"Those betting on a September rate hike have said U.S. economic data underscoring solid recovery will determine the timing."

The yuan dropped 0.2 per cent to 6.3990 per dollar after tumbling 2.8 percent during the previous two days.

China lowered the reference rate for the yuan by 1.1 per cent to 6.401 per USdollar on Thursday. It reduced it by a record 1.9 percent on Tuesday.