Offshore yuan pulls off all-time lows after tentative moves from Beijing to curb falls

The offshore yuan pulled back from an all-time low on Tuesday after Beijing appeared to take steps to prevent the currency from weakening further, following a sharp drop that prompted the U.S. government to declare China was manipulating its currency.

China said on Tuesday it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short selling of the currency. On top of that, the People’s Bank of China fixed the daily reference rate for the onshore Chinese yuan at 6.9683, firmer than the expected 6.9871, and below the key 7 rate through which it broke on Monday.

These moves have led analysts to think that Chinese authorities may not be ready yet to let the yuan weaken much further

“The recovery in yuan…is triggered by the fixing, which has eased some concern about competitive currency devaluation,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

The offshore yuan was last up by 0.27% at 7.0269 against the dollar after plunging to 7.14 Monday night, the lowest since offshore trading began in 2010. The onshore yuan opened trade at 7.0699 per dollar, versus its last close at 7.0498.

If the Chinese central bank fixes the rate at or above 7, this will likely be an “indication they are ready for the remnibi weakening phase,” said Stephen Gallo, forex strategist at BMO Capital Markets.

The small rebound in the Chinese remnibi has shifted investors’ focus away from safe-haven currencies, pushing the Japanese yen and Swiss franc lower.

The yen was last down by 0.46% at 106.43, pulling back from a 16-month high of 105.52 it reached overnight excluding the January flash crash. The franc was 0.2% weaker, bouncing off a 25-month high it reached on Monday.

On Monday, China let its currency break through a key support level to an 11-year low in a sign that Beijing might be willing to tolerate more currency weakness as Washington threatens to impose more tariffs.

And on Tuesday, China’s official Communist Party newspaper said that the United States was “deliberately destroying international order”, a day after Washington branded Beijing a currency manipulator in a rapidly escalating trade dispute.

The escalation in the US-China trade war began last week when President Donald Trump unexpectedly said he would impose 10% tariffs on $300 billion of Chinese imports from Sept. 1., essentially imposing a levy on all Chinese goods coming into the United States. Since then, the offshore yuan lost 3.4% of its value against the greenback.

Elsewhere, the euro was flat at $1.1185 after jumping to an 18-day high against the dollar overnight. The index which tracks the dollar against a basket of six major currencies was also flat at 97.62.

The pound was up 0.3% at $1.2176, not far from the 31-month low it reached last week.

China’s yuan goes through 7 to the dollar to an 11-year low

China let its yuan weaken below 7 yuan per dollar on Monday, an 11-year low, as the escalation in the U.S.-China trade war shook currency markets.

Fearful of the impact on global growth, investors dumped export-oriented Asian currencies and rushed into safe havens, with the Japanese yen surging to a seven-month high.

Chinese authorities, who had been expected to defend the psychologically important level of 7 per dollar, allowed the currency break thought the floor to its lowest in the onshore market since the 2008 global financial crisis.

In offshore markets, the yuan fell to its weakest since international trading of the Chinese currency began. The currency was headed for its biggest one-day drop in four years. It was last down 1.45% at 7.0395 in offshore markets.

The fall came after Beijing vowed on Friday to fight back against U.S. President Donald Trump’s decision to impose 10% tariffs on $300 billion of Chinese imports, ending a month-long trade truce.

“The fallout has been most evident in the Asia region,” MUFG analyst Derek Halpenny said. “We certainly expect to see general FX volatility increase in the coming days with daily PBOC (People’s Bank of China) CNY fixes an important focus each day.”

The currencies of other Asian economies are closely linked with China’s growth prospects also dropped. The Korean won fell 1.4% against the dollar, on course for its biggest one-day loss since August 2016. The new Taiwan dollar fell more than 0.7%.

The Australian dollar, often used as a proxy bet on China, shed as much as 0.5% to $0.6748, a seven-month low.

Japan’s yen, which investors buy in times of risk aversion, rose 0.7% to its highest since a January flash crash. The yen was last up 0.7% at 105.89, after hitting 105.78 earlier.

Japan’s top currency diplomat, Yoshiki Takeuchi, warned that Tokyo was ready to intervene if yen gains threatened its export-reliant economy.

The U.S. dollar edged lower against a basket of currencies, down 0.38% at 97.70. Against the euro the dollar slipped to $1.111.

Analysts said Trump, who has repeatedly called for a weaker dollar in 2019, was unlikely to ignore the yuan’s depreciation.

“There is also a risk later that President Trump responds to 7+ levels in $/CNY by claiming that China is playing a ‘big currency manipulation game’. This may extend to a threat to weaken the dollar, which will only encourage short positions in USD/JPY and a pick-up in traded volatility prices,” ING analysts said.

The Swiss franc, another safe-haven currency, strengthened 0.2% to 1.0883 francs per euro, a two-year high.

Sterling fell again after media speculation over the weekend that Prime Minister Boris Johnson was preparing for a general election. The pound shed 0.5% to $1.2105, not far from its two-year low of $1.2080 touched last week.

It was 0.5% weaker against the euro at 91.84 pence.

US tariffs raise demand for safe-haven yen; pound recovers

A U.S. threat to impose new tariffs on Chinese imports pushed the safe-haven Japanese yen to a five-week high against the dollar and a two-and-a-half-year high against the pound.

U.S. President Donald Trump said a 10% tariff would be imposed on $300 billion worth of Chinese goods on Sept. 1, after U.S. negotiators returned from trade talks in Shanghai and reported no progress. Trump claimed China had failed to live up to promises made in previous talks.

The yen was up 0.4% to 106.95 against the dollar. It had jumped to 106.86 in Asian trading, its strongest since June 25. It was last up 0.6% at 129.61 against the pound after gaining to 129.41 earlier, its strongest since November 2016.

“There was a speculative move to test the dollar/yen’s downside, but it ran into a lot of real-demand bids,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

“Yen buying still has further room to run, especially against the crosses. Trump has given us plenty of reason to move to risk-off trades. The trade war will be in focus for some time to come.”

The battered pound recovered some losses on Friday, but it was not far from the 30-month low it reached on Thursday. It was last trading unchanged at $1.2123 and at 91.48 pence against the euro.

Most market participants remain wary of sterling, worried that the chances of a disorderly Brexit grew after Boris Johnson took over as prime minister last month.

Traders will be watching UK construction purchasing managers’ survey due at 0830 GMT. According to economists polled by Reuters, the PMI is expected to rise to 46 in July from 43.1 in June, though still remaining in the contraction territory.

The euro was unchanged at $1.1091, not far from the 26-month low it hit the previous day.

Non-farm payrolls are due in the United States later in the day. Economists a decrease in the number of jobs added to the economy, to 164,000 in July from 224,000 in June.

Responses to the jobs report are “skewed toward a bigger move to a weak report, given it would reinforce the increased global risk concerns,” said Derek Halpenny, currency strategist at MUFG after the escalation in the U.S.-China trade war.

Elsewhere, the Swiss franc reached a two-year high of 1.0949 against the euro.

Dollar stalls ahead of Fed meeting

The dollar lacked direction on Tuesday as traders held off on making big moves ahead of the Federal Reserve meeting concluding Wednesday, at which policymakers are expected to cut interest rates for the first time since the financial crisis by 25 basis points.

The move would be a so-called insurance cut to protect the U.S. economy from global uncertainties and trade pressures, in contrast to interest rate cuts by countries facing more imminent risks. Markets will be watching the Fed’s forward guidance for clarity on whether the committee sees the cut as a one-off or as the beginning of a rate-cutting cycle.

“The market is on hold waiting for the FOMC meeting tomorrow. That is expected to be the next driver of price action at a general level,” said Shahab Jalinoos, global head of foreign exchange strategy at Credit Suisse in New York.

The euro hovered on Tuesday around the 26-month low it reached last week of $1.110. Although the Fed is expected to lower rates, U.S. yields will remain above those in the euro zone, making the dollar a more attractive investment for yield-seeking traders.

The pound was the biggest mover in the foreign exchange market, plunging to a new 28-month low of $1.212 in Asian trading on growing concerns that Britain could crash out of the European Union without a transition agreement on Oct. 31.

Sterling was last down 0.33% at $1.217. It was also weaker against the euro by 0.37% at 91.54 pence, having earlier touched a two-year low of 91.88 pence.

“Clearly in the UK, sterling is moving due to local political developments – most importantly the idea that Prime Minister Johnson may not want to meet European leaders unless they change their position, which is a more hard-line stance than the market would have expected as recently as a week ago,” said Jalinoos.

The Japanese yen was last up by 0.21% at 108.54 yen per dollar after the Bank of Japan on Tuesday maintained its pledge to keep short-term interest rates at a negative 0.1% via aggressive bond purchases, as expected.

“The Bank of Japan meeting did not deliver anything materially new. There was a minor change in the wording of the statement, but it does appear that Japan is going to wait and see what materializes from the Fed and ECB before taking action,” said Jalinoos.

Sterling tumble continues on growing worries about no-deal Brexit

Sterling fell to a new two-year low versus the dollar on Tuesday amid growing speculation that Britain is headed for a messy no-deal Brexit from the European Union.

Sterling has fallen against the dollar for the past four trading days on worries that Britain will exit the EU without agreements on trade and other key issues. There is also a chance that new Prime Minister Johnson will call an early election.

Against a basket of six major currencies, the dollar traded near a two-month high.

inRead invented by Teads

The Fed is expected to cut rates by 25 basis points on Wednesday, and investors are watching for clues on whether the move may be a one-off or the first in a series of several cuts, as many traders are anticipating.

Uncertainty about how Britain will divorce itself from the EU and the resulting economic impact could keep the pound on the back foot for weeks to come.

Monetary policy is another important factor for currency markets as central banks from Australia, New Zealand, Europe and possibly Britain are expected to cut rates due to low inflation and risks to global economic growth.

“No one wants to buy the pound now,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

“The bottom has fallen out, and I’m not sure where it will stop. Uncertainty about Brexit is the main story. I don’t see how Johnson can get an agreement in place.”

Sterling fell to $1.2120, the lowest since March 2017.

The pound took a turn for the worse on Monday after Johnson said the Brexit divorce was dead and warned that unless the European Union renegotiated, Britain would leave on Oct. 31 without a deal.

The dollar index edged to a two-month high of 98.206.

The Fed is forecast to cut its target interest rate range on Wednesday by 25 basis points to 2.00%-2.25%.

Investors previously saw the chance of an even more aggressive 50-basis point cut, according to interest rate swaps, but these expectations have dissipated as data has shown the U.S. economy is not as weak as some feared.

The yen was little changed versus the dollar on Tuesday, trading near a three-week low after the Bank of Japan left monetary policy on hold as expected.

The yen was quoted at 108.570 per dollar, little changed on the day. The yen fell to a three-week low of 108.950 early in Asian trading.

Japan’s currency pared its losses and edged a tad higher versus the dollar after the BOJ’s decision, but the move quickly faded.

The BOJ, as expected, maintained a pledge to guide short-term interest rates at -0.1% and the 10-year bond yield around 0% via aggressive bond purchases.

The BOJ also said it will ramp up stimulus “without hesitation” if needed, but traders have repeatedly said that compared with other major central banks the BOJ has limited options left.

Dollar near two-month top after US GDP boosts yield appeal

The dollar clung to a two-month high against a basket of currencies in Asia on Monday after better-than-expected U.S. GDP data last week enhanced its yield attraction against rival currencies.

The U.S. Federal Reserve is widely expected to cut interest rates for the first time in more than a decade this week, but such a move is widely seen as a pre-emptive one to protect the economy from global uncertainties and trade pressures, in contrast to some other countries that face more imminent risks.

“What everyone is interested in right now is whether the U.S. will enter a full rate-cut cycle. The GDP figures were a bit stronger than expected, putting a dent to the view of the U.S. entering a long easing cycle,” said Kyosuke Suzuki, director of forex at Societe Generale.

The dollar index stood little changed at 97.980, after having hit a two-month high of 98.093 on Friday.

U.S. gross domestic product increased at a 2.1% annualized rate in the second quarter, above forecast of 1.8%, as a surge in consumer spending blunted some of the drag from declining exports and a smaller inventory build.

“Recently the dollar has been supported by strong U.S. economic data. The euro zone data has been weak of late so if coming U.S. data such as payrolls figures are strong, the dollar could gain despite a Fed rate cut,” said Shinichiro Kadota, senior strategist at Barclays.

The data pushed up U.S. bond yields and cemented expectations that the Fed will go for a smaller interest rate cut of 25 basis points, rather than 50 basis points, to 2.0-2.25 percent.

While U.S. money market futures price in a total of almost 75 basis points of cuts by the end of the year to 1.5-1.75 percent, that still leaves the dollar with the highest interest rates among major currencies.

The European Central Bank signaled last week that it is likely to cut interest rates deeper into negative and adopt more easing measures in September to shore up the sagging euro zone economy.

The euro stood at $1.113, almost flat in Asia and not far from Thursday’s low of $1.1101, a trough since May 2017.

The U.S. currency also got a minor boost from White House economic adviser Larry Kudlow, who said on Friday that the Trump administration has “ruled out” intervening in markets to lower the U.S. dollar’s value.

Against the yen, the dollar slipped 0.12% to 108.53 yen due largely to month-end selling by Japanese exporters, after having hit a two-week peak of 108.83 yen on Friday.

The Bank of Japan is starting a two-day policy meeting later on Monday.

Market players expect the BOJ to send dovish messages and it could try to put on a semblance of easing by changing its forward guidance.

But the central bank looks certain to refrain from rate cuts and other major policy easing given its lack of policy ammunition.

The Australian dollar was slightly lower at $0.6903 after dipping to one-month low of $0.6900 earlier following Chinese data on Saturday showing profits earned by the country’s industrial firms contracted in June.

U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer will meet with Chinese Vice Premier Liu He for talks in Shanghai starting on Tuesday, their first face-to-face meeting since U.S. President Donald Trump and Chinese President Xi Jinping agreed to revive talks late last month.

But Trump on Friday offered a pessimistic view of reaching a trade deal with China, saying Beijing may not sign one before the November 2020 election in hopes a Democrat who will be easier to deal with, will win.

Sterling fell to a 28-month low as a no-deal Brexit seems increasingly likely under new British Prime Minister Boris Johnson.

Senior ministers said on Sunday the British government is working on the assumption that the European Union will not renegotiate its Brexit deal and is ramping up preparations to leave the bloc on Oct. 31 without an agreement.

An opinion poll also showed Johnson’s Conservative Party has opened up a 10-point lead over the opposition Labour Party, fuelling speculation that Johnson will call an early election.

Euro at 2-month low against dollar as investors wait for ECB easing

The euro sank to a new two-month low against the dollar on Thursday as investors waited for the European Central Bank to signal another round of monetary easing, including a possible rate cut and the resumption of bond purchases.

The slide was exacerbated by a bigger-than-expected fall in the German Ifo index of current business conditions to 99.4 in July from 100.8 in June. A Reuters poll of economists had expected a decline to 100.4.

“I doubt that anything the ECB does or says provides much comfort” for the beleaguered euro, said Kit Juckes, macro strategist at Societe Generale.

Money markets are pricing in a 50% chance of a 10 basis points interest rate cut by the ECB on Thursday, a smaller probability than last week, but some expect that President Mario Draghi will open the door for further cuts down the road or for more quantitative easing.

Hedge funds kept short positions on the euro at $4.39 billion in the week to July 16, around levels seen early this year, according to the Commodity Futures Trading Commission.

However, some analysts expect the central bank to be way less dovish and only tweak its forward guidance by re-introducing the easing bias.

“Our best guess is euro ends the day higher,” said Elsa Lignos, strategist at RBC Capital Markets, adding that RBC analysts expect the ECB to wait until September to cut the key benchmark rate.

A Deutsche Bank index showed investors have been ramping up call options holdings in euro/dollar, pushing the amount of call options to the highest since early 2018, which serves as evidence that some market participants see the euro strengthening.

“This is an ECB meeting where the market seems unprepared for EUR/USD weakness,” said George Saravelos, a forex strategist at the German lender.

Those opposing views in the market were reflected in euro overnight implied volatility jumping to 12.73, its highest since December.

The euro dropped earlier to $1.1122, the lowest it’s been since May 30, trading down 0.1% on the day at $1.1128. It has shed more than 2% of its value so far this month. The ECB announces its rate decision at 1145 GMT, followed by a news conference at 1230 GMT.

The Swiss franc, buoyed by expectations of lower rates in the euro zone, rocketed to a new two-year high of 1.0963 against the common currency and was last at 1.0978. The spike in the franc bolstered expectations that the Swiss could intervene to weaken the currency to protect their export-reliant economy.

Sebastien Galy, macro strategist at Nordea Asset Management, said he expected the Swiss National Bank and Danish central banks to cut rates in September and he saw “a decent chance that the SNB already reacts post today’s ECB meeting.”

Elsewhere, expectations of lower interest rates sent the Australian dollar to a new two-week low of $0.6963.

The pound remained below $1.25 and not far from the 27-month low it reached last week, last trading slightly lower at $1.2472 as new Prime Minister Boris Johnson assembled his largely Brexiteer cabinet.

Euro slips to two-month low ahead of ECB meeting, pound under pressure

The euro slipped to a two-month low on Wednesday, as markets waited to gauge the European Central Bank’s stance on policy amid bubbling expectations that it could eventually lower interest rates and join the global easing trend.

The common currency was 0.05% lower at $1.1145 after touching $1.1143, its lowest since May 31. It had already lost more than 0.5% the previous day and shed nearly 0.7% so far this week.

The euro’s decline has quickened ahead of the ECB’s policy meeting on Thursday. While markets have pared their bets the central bank would cut rates by 10 basis points, they still expect dovish guidance, paving the way for easing in September.

inRead invented by Teads

“Attempts within the currency market to price in dovish moves or language by the ECB have gathered pace over the last few days, leading to the euro’s steep decline,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“The key point is not necessarily whether the ECB eases this week or not, but what kind of language (President Mario) Draghi employs regarding policy direction.”

The euro was also seen weighed down as the pound slumped toward a two-year low after Boris Johnson on Tuesday won the contest to be the next British prime minister and raised the specter of a no-deal Brexit.

Sterling was a touch lower at $1.2433, on track for its fourth straight day of losses and edging closer to $1.2382, the two-year trough brushed last week.

The dollar hovered near a one-week high of 108.290 yen scaled overnight, supported by a rise in U.S. Treasury yields as investor risk aversion waned following some progress in U.S.-China trade negotiations.

U.S. Trade Representative Robert Lighthizer and senior U.S. officials will travel to Shanghai on Monday for face-to-face trade meetings with Chinese officials, Bloomberg reported on Tuesday, citing unnamed sources.

The greenback also firmed after Washington on Tuesday reached a deal to lift government borrowing limits. Analysts reckon increased U.S. borrowing would tighten the supply of money in the country’s banking system and in turn support the dollar.

The dollar index edged up to a five-week high of 97.755, following gains of nearly 0.5% the previous day.

“In addition to the euro’s weakness ahead of the ECB meeting, the dollar is supported as market participants continue to discount the likelihood of the Fed cutting rates by 50 basis points at next week’s FOMC (Federal Open Market Committee) meeting,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

Speculation that the Federal Reserve would lower rates by 50 bps at its July 30-31 meeting had increased earlier this month following comments from some senior Fed officials, but investors now see a shallower 25 bp cut as more likely.

The Australian dollar fell to a 12-day low of $0.6978 after Westpac Banking Corp brought forward the timing of its forecast for the next rate cut by the Reserve Bank of Australia (RBA) to October, from November previously. The Aussie last traded down 0.35% at $0.6980.

Sterling in defensive mood on concerns about no-deal Brexit

Sterling was on the back foot on Tuesday as investors worried Boris Johnson, the front-runner to become the UK’s next prime minister, would trigger a “hard Brexit” from the European Union, widely seen as a major risk for the British economy.

The euro briefly touched the lowest in five weeks due to growing expectations European Central Bank President Mario Draghi will signal a rate cut in September at a policy meeting later this week to keep inflation expectations on track.

The New Zealand dollar fell after Bloomberg News reported that the country’s central bank is refreshing its strategies for unconventional monetary policy, but trading in other Asian currencies was subdued as investors awaited major developments in China-U.S. trade negotiations.

The dollar edged higher against the yen but was hemmed in against other major currencies on expectations for a U.S. Federal Reserve rate cut next week.

Speculation over the likelihood of a no-deal Brexit and questions over how far major central banks will ease monetary policy are likely to set the tone for currency markets in coming weeks, traders and analysts said.

“Johnson is expected to become the new prime minister, so there is a real chance of a hard Brexit,” said Takuya Kanda, general manager of research at Gaitame.Com Research Institute in Tokyo.

“In the short term, further declines in the pound could be limited because positions are already very short. In the medium term, sentiment for sterling will remain soft.”

The pound traded at $1.2459, within striking distance of a 27-month low of $1.2382 reached last week.

Sterling has fallen 3.7% versus the dollar in the past three months due to uncertainty about how Britain will avoid a no-deal exit from the EU.

Britain’s Conservative Party will announce the results of a leadership election on Tuesday, with Johnson widely expected to win, setting him up to become prime minister on Wednesday.

There is growing speculation Johnson will pull Britain out of the EU on Oct. 31 without a trade deal in place.

Hedge funds have increased short positions on the pound to a 10-month high in the week to July 16, Commodity Futures Trading Commission data shows.

The New Zealand dollar fell 0.4% to $0.6734, putting the kiwi on track for a third straight day of losses.

The Reserve Bank of New Zealand has “begun scoping a project to refresh our unconventional monetary policy strategy and implementation,” the central bank said according to a Bloomberg News article published on Tuesday.

The RBNZ kept the official cash rate at a record low of 1.50% in June but warned that interest rate cuts may be necessary in the future.

Interest rate swaps showed a 79% chance of a 25 basis point rate cut at the RBNZ’s next policy meeting on Aug. 7.

“The Bloomberg story has struck a nerve because it can be linked to speculation about a rate cut at the next policy meeting,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

“It’s possible for the kiwi to go a little lower. The currency market is focused completely on central bank policy moves.”

The euro briefly fell to $1.1191, the lowest since June 19, as traders awaited the ECB’s policy meeting and Draghi’s comments at a news conference on Thursday.

Traders see a 43% probability that European policymakers will lower a key deposit rate by 10 basis points to minus 0.50% to combat risk from global trade tensions.

Economists surveyed by Reuters expect the ECB to change its forward guidance to pave the way for a rate cut in September.

The dollar traded at 108.14 yen. The dollar index was marginally higher at 97.435.

The U.S. central bank is widely expected to lower its target range of 2.25%-2.50% by 25 basis points at a meeting ending July 31, but expectations for a larger 50-basis point cut have waxed and waned due to mixed signals from Fed policymakers.

Dollar on back foot after Fed shores up bets on large rate cut

The dollar steadied on Friday but was still on the defensive after Federal Reserve officials bolstered expectations of an aggressive rate cut this month to address weakening price pressures.

At a central banking conference on Thursday, New York Fed President John Williams argued for pre-emptive measures to avoid having to deal with too low inflation and interest rates.

That sent the dollar down before it bounced slightly in early Asian trade, after a New York Fed representative subsequently said Williams’ comments were academic and not about immediate policy direction.

Still, investors took his remarks along with separate comments from Fed Vice Chair Richard Clarida as another dovish signal from the central bank, which could be opening the way for a big rate cut at the end of this month.

The dollar stood at 107.42 yen, up 0.2% from late U.S. levels after having hit a three-week low of 107.21 the previous day.

The euro eased slightly to $1.1266 from $1.1282. On the week, the dollar is down 0.4% versus the yen and 0.1% on the euro.

The dollar index, which hit a two-week low of 96.648, bounced to 96.792.

The greenback fell broadly on Thursday after Williams’ remarks bolstered bets that the Fed would cut interest rates by 50 basis points, rather than 25 basis points.

Williams said when rates and inflation are low, policymakers cannot afford to keep their “powder dry” and wait for potential economic problems to materialize.

That is especially true with neutral rates that would neither restrict nor accelerate the U.S. economy, he said. When adjusted for inflation, the neutral rate is near the Fed’s current policy rate, which is in a range of 2.25-2.50%.

Financial markets reacted quickly, with money market futures pricing in almost a 70% chance of a 50 basis point cut at its policy meeting on July 30-31 at one point.

The odds eased to around 40% after the New York Fed’s clarification of his speech.

All the same, Williams’ rate-cut view was echoed by Fed Vice Chair Clarida, who told Fox Business Network the central bank might have to act early and not wait “until things get so bad”.

“Williams’ comments were surprisingly dovish. The NY Fed went all the way to try to modify the message but no one seems to have done so for Clarida, who also said a very similar thing,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The dollar’s weakness also underpinned many emerging market currencies.

MSCI’s emerging market currency index has risen 0.35% so far this week to a four-month high of 1,657.07, coming within sight of this year’s double peak around 1,658, hit in late January and March.

The Brazilian real rose to five-month high of 3.7172 to the dollar on Thursday while the South African rand also scaled a five-month peak of 13.8175 and last stood at 13.855.

“If the Fed cut rates, that could encourage fresh investments in emerging currencies and other risk assets,” said Bart Wakabayashi, State Street Bank’s representative in Japan.

Elsewhere, the pound remained firm following stronger-than-expected UK retail sales numbers and after British lawmakers on Thursday approved proposals to make it harder for the next prime minister to force through a no-deal Brexit by suspending parliament.

The pound stood at $1.2552, flat in Asia after 0.93% gains overnight, though it was the worst performer among G10 currencies so far this week, with a loss of 0.2%.

The biggest stride was made by the New Zealand dollar, which is up 1.3% for the week at a 3-1/2-month high of $0.6785, as the Fed’s anticipated monetary easing is seen boosting the relative yield attraction of the kiwi.

The currency has the second highest bond yield among G10 currencies after the U.S. dollar.