China Cuts Key Interest Rates, USD Weakens

The Chinese central bank has cut key interest rates following a meeting of the CCP leaders which considered ways to boost the country’s economy. In the U.S., President Joe Biden’s decision to withdraw from the Presidential race led to the USD weakening.

China has cut key interest rates, five-year loan prime rate and its one-year rate to boost the country’s economy. The People’s Bank of China (PBC), the country’s central bank, has reduced the five-year rate, a benchmark for mortgages, from 3.95% to 3.85%. The PBC has reduced the one-year rate from 3.45% to 3.35%, the first cut since August 2023.

Besides, the PBC reduced collateral requirements for its medium-term lending facility for banks to ease pressure on the bond market. It was only a few days ago that the leaders of the Chinese Communist Party (CCP) had met to discuss the direction of the country’s economic policy for the next few months.

The Chinese leadership has been putting in efforts to address a range of issues plaguing the country, such as slumping property and consumer markets, a bleak job market and a less-than sufficient post-COVID demand recovery. Note that China’s consumer price index (CPI) rose 0.2% year-on-year (YoY) in June 2024 against 0.3% in May.

It’s the fifth month in a row that CPI rose in China, underlining the persistent inflation in China. Many public utility companies in China have increased the prices of some utilities such as water, power and gas as costs rise and budgets tighten. As a result of the latest rate cuts, Chinese bonds gained and the yield on 10-yr sovereign note dropped nearly 2 basis points.

Dollar Weakens Following Biden’s Withdrawal From Presidential Race

The biggest news from the United States is President Joe Biden withdrawing from the Presidential race. Biden has endorsed Vice President Kamala Harris to lead the Democratic Party in the November 2024 election.  

The expected but sudden announcement led to the U.S. Dollar weakening against most other major currencies. The U.S. Dollar index has fallen by a modest 0.13% to 104.26 points.

Former President Donald Trump is the Republican Party’s Presidential candidate who survived an assassination event earlier this month. The trading community will watch the contest with keen interest as the policies of the next U.S. government for the next four years will greatly influence the global markets.