Yuan jumps as Beijing vows to boost economy; pound and euro check losses

The three currencies gain 0.5pc, 0.22pc and 0.12pc respectively

SINGAPORE/LONDON (Reuters) – China's yuan strengthened after the country's top leaders pledged to step up policy support for the flailing economy, while the euro and sterling steadied after several days of declines as investors awaited major central bank meetings.

The yuan firmed by more than 0.5 per cent in both the onshore and offshore markets as investors cheered comments at the closely watched Politburo meeting, though many were still seeking specific details on greater stimulus measures.

The yuan traded offshore was last at 7.1444 per dollar and in the onshore market it was at 7.1454 per dollar. Chinese stocks, especially property names, also surged.

"Overall, the sheer range of issues that the meeting touched upon goes beyond what the markets had anticipated," said Tommy Xie, head of Greater China research at OCBC.

"While the sweeping breadth of the topics was appreciated, the execution and depth of these policies will be the real test."

Also propping up the yuan were China's major state-owned banks selling US dollars to buy yuan in both onshore and offshore spot markets on Tuesday, sources told Reuters.

The positive sentiment from China lifted the Australian dollar, often used as a liquid proxy for the yuan, which rose 0.4pc to $0.6767.

In Europe, the pound rose 0.22pc to $1.2854, its first day of gains after seven straight sessions of losses, its longest such streak since March 2020.

The euro gained 0.12pc to $1.1076, after slumping to a two-week low of $1.1059 earlier in the session, on the back of a survey on Monday which showed euro zone business activity shrank much more than expected in July

That caused traders to trim expectations of future rate hikes by the European Central Bank later in the year. Anything other than a 25-basis-point increase at Thursday's meeting would come as a major surprise.

The Federal Reserve also meets this week and is expected to raise rates by 25 bps, with a majority of economists polled by Reuters expecting that to mark the last increase of the central bank's current tightening cycle.

"While the Fed meeting (in July) is likely to be uncontroversial in terms of the decision on interest rates, the Fed's statement and the press conference will be extremely relevant for markets," said Guillermo Felices, global investment strategist at PGIM Fixed Income.

Back in Asia, the yen remained under pressure at 141.30 per dollar, struggling to recover from heavy losses on Friday on a Reuters report that the Bank of Japan (BOJ) is leaning towards keeping its yield control policy unchanged at this week's policy meeting.

"(BOJ) Governor Ueda has held his cards close to his chest, seemingly unpersuaded by the recent run up in Japanese prices and especially workers' wages, and he has dropped few hints about an impending YCC tweak," said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management.