Dollar Gains vs Yuan as PBoC Chief Hints at Depreciation

Investing.com -- The dollar was little changed against most major currencies in early trading in Europe Friday but rose against the Chinese yuan after China’s central bank governor hinted that he may allow the currency to depreciate.

Trading has settled into generally tight ranges ahead of the release of the U.S. labor market report at 8:30 AM ET (1230 GMT), which will provide a clear signal of how much the U.S. economy is cooling under pressure from widening tariff disputes with China and Mexico.

At 02:20 AM ET (0620 GMT), the euro was at $1.1267, falling slightly after the report of a surprising drop in German industrial production in April. French industrial production data and Italian retail sales for April are due later in the morning.

The dollar index, which measures the greenback against a basket of six major currencies, was effectively unchanged at 97.012.

Overnight, People’s Bank of China governor Yi Gang told Bloomberg in an interview that “no one number is more important than another” as regards the yuan’s exchange rate, a comment that analysts took to mean that the central bank won’t go all out to stop it falling below 7 to the dollar.

“The risk of yuan breaking 7 has increased along with the escalation in the trade war and the prospect that tension will be prolonged,” Bloomberg quoted National Australia Bank strategist Christy Tan as saying.

The euro is little changed from a day ago, after the European Central Bank sent a nuanced message at its latest policy meeting. The ECB appeared to rule out cutting interest rates again with its forward guidance in its initial policy statement, but outgoing President Mario Draghi subsequently repeated that it hadn’t ruled anything out – including the resumption of quantitative easing – if the economy slows further. His comments quickly reversed gains that the euro had initially made.

Elsewhere, the British pound was at $1.2701, little changed from late Thursday. Markets may have taken with a pinch of salt remarks by Governor Mark Carney that interest rate hikes are still on the table once the uncertainty over Brexit recedes. Even so, the comments were clearly less dovish than Draghi’s.

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