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Dollar in demand as modest China rate cut hits sentiment


Investing.com - The U.S. dollar gained in early European trade Tuesday, with this safe haven in demand as a rate cut by China’s central bank failed to assuage investor concerns over slowing economic growth.

At 01:55 ET (05:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 102.118, rebounding from its recent one-month low.

PBOC cuts benchmark loan prime rate

China’s central bank, the People’s Bank of China, cut its benchmark loan prime rate by 10 basis points earlier Tuesday, a move that had been widely telegraphed as Beijing struggles to shore up a slowing economic recovery.

However, this size of the rate decrease disappointed some who fretted that this would not be enough to shore up confidence, with the Chinese property sector particularly hard hit.

USD/CNY rose 0.2% to 7.1769, with the yuan trading just shy of its lowest level since late November, with traders looking for a wider stimulus package from Chinese authorities but receiving a lack of concrete measures from a cabinet meeting on Friday.

Powell to testify to Congress this week

The dollar is also receiving something of a boost Tuesday ahead of an upcoming testimony by Federal Reserve Chair Jerome Powell before Congress, starting on Wednesday.

The U.S. Federal Reserve paused its year-long rate-hiking cycle last week to assess its impact on inflation and the country’s economic outlook, but also hinted at the likelihood of further rate increases ahead.

Traders are looking at Powell’s testimony–to the House Financial Service Committee on Wednesday and the Senate Banking Committee on Thursday–for cues on U.S. monetary policy, amid caution over the possibility that he may signal a July rate increase is on the cards.

U.S. economic data due Tuesday include housing starts and building permits for May, while FOMC member James Bullard is also scheduled to speak.

Euro remains firm; ECB debates further hikes

Elsewhere, EUR/USD traded largely flat at 1.0922, remaining close to a one-month peak as ECB officials spar over the need for more interest rate hikes going forward to continue the battle against inflation.


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