The world, or at least the financial world, has its eyes on China yet again. The Chinese economy hasn't been living up to investors' expectations. China's top officials are proposing to introduce some measures to reverse the economic downturn.
This isn't out of the blue. Over the past few weeks, they've been slowly small policies to prop up the economy. Such as making it easier for average citizens to get a mortgage and pushing people to buy cars and electronics. Maybe even helping local governments that are drowning in debt.
While not revolutionary, many people feel positive about China's officials suggesting financial stimulus from the State Council. They hope this will have a big impact.
Ironically, when this news broke in the European session yesterday, it didn't cause much of a stir in the USD/CHN exchange rate. However, Asian investors seem to be buying into it and have pushed the Yuan up a bit this morning. Chinese stocks didn't do too badly, either.
Don't get too excited just yet. We've seen this movie before with China promising economic boosts that didn't quite deliver. So these trends might fade away. That said, they can give a bit of a lift to emerging markets and commodity currencies for the time being.
Just a word of caution: It's probably not a good idea to go full 'risk-on' with your investments in currencies from the rest of the world.
The European economy isn't looking too strong, and the U.S. Federal Reserve is likely to keep things tight in their meeting tomorrow. So, keep an eye out for these factors.
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Some have been pretty optimistic about the European Central Bank (ECB) and the strength of the euro. But the reality of recent data might sh*t on their parade.
Some market data - the PMI data - caused the euro to drop about 0.4% compared to a basket of other currencies yesterday. That's a bit of a wake-up call for the more optimistic or "hawkish" ECB supporters.
Yesterday, EURUSD dipped below 1.1100. And just to be clear, that was because of a weaker euro, not a stronger dollar. Even though that drop was more about the euro, we're also seeing some risks that could pull the EUR/USD down further, thanks to the dollar.
In the short term, with the U.S. Federal Reserve's (FOMC) meeting coming up tomorrow, there's some pressure on the EUR/USD. If it falls below 1.10, that could wipe out the positive momentum we saw earlier this month.
But looking at the bigger picture, if we're hoping for a more substantial and sustained increase in the EUR/USD, we might have to wait until September.
By then, the Fed should have enough evidence of "slowing inflation" (aka "disinflation") to recognize it in their statement officially. And if that happens, it could potentially boost the value of the euro against the dollar.