Yuan spikes higher as markets yawn at Fed - Kogonuso

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Jan 5, 2017

Yuan spikes higher as markets yawn at Fed

LONDON: The yuan spiked higher on Thursday (Jan 5) as China moved to support its currency while investors weighed the Fed's signal that US interest rates may rise faster than expected.
The offshore yuan racked up two-day gains of 1.8 per cent, the biggest on record, Bloomberg reported, as traders scrambled for a currency that's becoming increasingly scarce and difficult to obtain.
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China's stepped up efforts to crack down on currency outflows comes as the inauguration approaches of Donald Trump, who has criticised Beijing for manipulating the yuan to keep its value low to boost sales to the United States.
The dollar slumped against most currencies.
"The weak dollar in the last 24 hours is likely more a function of yuan strength than any change in expectations for US interest rates," said market analyst Jasper Lawler at London Capital Group.
Meanwhile Wall Street stocks won solid gains on Wednesday after the the Federal Reserve's signalled that US interest rates may rise faster than expected, but that failed to carry over elsewhere.
Asian and European stock markets mostly drifted.
UNCERTAINTY
The minutes of the final 2016 policy meeting in December at which the US central bank lifted interest rates hinted at a possible need to raise rates more rapidly than planned owing to "considerable uncertainty" linked to Trump's fiscal stimulus plans that risks fanning inflation.
"Although Wednesday's hawkish Fed minutes reinforced some speculations of the central bank raising US rates this year, the substantial uncertainty over how Trump's policies may impact the US economy could keep investors on edge," said research analyst Lukman Otunuga at FXTM online brokerage.
"The threat of Donald Trump's proposed fiscal policies falling short of market expectations has exposed the greenback to downside risks," he added.
"After the Fed minutes ... the focus shifts to the outlook for US jobs" data due on Thursday and Friday said Chris Beauchamp, chief market analyst at IG trading group. "The onus is now on the dollar bulls to prove that further advances in the greenback are warranted."
Data released Thursday showed first-time unemployment benefits applications dropped sharply last week to 235,000, to the surprise of analysts, a near 43-year low.
Meanwhile data from ADP showed the private sector created 153,000 jobs in December compared to expectations of 170,000 and a big drop from the 215,000 pace in November.
The "mixed US economic data had a neutral effect on the dollar," said Lawler.
US stocks failed to gain traction, too, sliding back as investors hammered retailers following reports of disappointing holiday sales from department stores Macy's and Kohl's.
London's benchmark FTSE 100 scraped out modest gains to close at another record high, having earlier struck a new all-time high of 7,211.96 points on positive economic data.
The latest Purchasing Managers' Index (PMI) for the nation's key services industry jumped in December to a 17-month peak at 56.2, data compiler IHS Markit revealed in a statement Thursday.
"Following the manufacturing and construction equivalents beating forecasts, today's release suggests that the UK economy is performing well," said XTB market analyst David Cheetham.
"The British economy continues to defy expectations," said Beauchamp, as many analysts expect that economy will eventually slow down as the costs of Britian's exit from the European Union become clear.
Oil prices were mixed after data showed that while US crude stocks fell sharply, supplies of oil products jumped.

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