Ella 
USD/CNH hit a fresh intraday high after the People’s Bank of China (PBoC) announced an interest rate cut early Monday. There was no news last week suggesting more stimulus from China, which could add strength to USD/CNH. As a result, USD/CNH rose to 7.3240 for the second day in a row at press time, extending its three-week winning streak.
The People’s Bank of China (PBOC) lowered the one-year lending prime rate (LPR) to 3.45% from 3.55% previously and 3.40% expected. However, the People’s Bank of China kept the five-year prime lending rate unchanged at 4.20%. It is worth noting that the People’s Bank of China previously cut the medium-term lending facility (MLF), the standing lending facility rate (SLF) and the reverse repurchase rate to inject liquidity into the world’s second-largest economy.
Earlier in the day, China’s state media Xinhua News Agency reported that the Chinese government plans to introduce fertilizer and pesticide subsidies in the northern region, Reuters reported. Likewise, news from China over the weekend suggested that the country was stepping up its efforts to pump liquidity into the world’s second-largest economy, which in turn sparked cautious optimism in markets early on Monday.
U.S. stocks ended mixed on Friday, while U.S. Treasury yields eased after a sharp sell-off in stocks this week and bond coupons rose. That said, S&P 500 futures remained lackluster at press time, trading at monthly lows.
On the other hand, the U.S. dollar index (DXY) retreated from a 10-week high as market participants struggled to accurately predict Federal Reserve Chairman Jerome Powell’s views at this week’s Jackson Hole seminar. That said, the DXY rose for five straight weeks before retracing to 103.30.
Upbeat New York Fed manufacturing index, retail sales and wage growth kept the dollar index firm for a fifth straight week, especially on the back of hawkish Fed minutes. That said, the latest Fed minutes showed that while divided over the imminent rate hike, most policymakers were inclined to favor another fight against “stubborn” inflation. In addition, market participants began to reassess previous biases against major central banks and heightened risk aversion, fueled by China’s economic woes. Likewise, investors are anticipating an uncertain outlook for the end of the rate hike cycle, which means more bearish pressure on risk assets and a hit to the dollar.
The August Purchasing Managers Index (PMI) and July flash durable goods orders will be in focus for USD/CNH traders ahead of speeches by central bankers at the annual Jackson Hole symposium.
