The U.S. dollar fell against the euro, the Chinese yuan, and the Australian dollar as risk appetite improved, supported by optimism over a potential trade agreement between the United States and China, which reduced demand for the greenback.
Currency market movements remained relatively limited as traders awaited crucial meetings by several central banks this week.
Analysts noted that the markets are witnessing a wave of optimism driven by several factors, including the easing of trade tensions between the U.S. and China, Washington’s signing of trade agreements with several East Asian countries, and positive economic developments in South America.
The U.S. Dollar Index slipped slightly, while the euro posted modest gains against the dollar. The focus now shifts to the upcoming decisions of major central banks in the coming days. The Federal Reserve and the Bank of Canada are expected to cut interest rates, while the European Central Bank and the Bank of Japan are likely to maintain their current monetary policies.
In China, the yuan received support after the People’s Bank of China set the daily reference rate stronger than expected interpreted as a positive signal ahead of the upcoming meeting between the U.S. and Chinese presidents, or as a move to stimulate domestic demand. The offshore yuan climbed to its strongest level in over a month against the dollar.
Meanwhile, the Australian dollar strengthened following hawkish remarks from the Reserve Bank of Australia’s governor, who stated that the rise in core inflation warrants a reconsideration of the anticipated rate cut.
Investors are also awaiting the upcoming meeting between the U.S. president and Japan’s new prime minister, which is expected to address trade issues between the two nations. The dollar remained nearly steady against the Japanese yen, which has recently been affected by concerns over potential expansionary fiscal policies by the Japanese government.
On another front, investors are closely watching developments surrounding the U.S. government shutdown amid growing concerns about its prolonged negative impact on the economy. The aviation sector has been particularly hit, facing widespread disruptions due to an increasing number of air traffic controllers calling in sick.
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