The USD Takes A Dive As Sentiment Improves After PBOC Announces RRR Cut

Today Peple’s Bank of China announced a significant 50 basis point cut in the RRR rate, which was welcomed by markets. That led to an exciting trading session in Europe, while the USD kept retreating all day, as treasury yields kept sliding lower and the risk sentiment in financial markets turned positive.

People’s Bank of China Turning the Sentiment Around

While this action by the PBOC is not exactly the $268 billion that was promised to keep the Chinese stock market from falling further, but it is something real and it is having a positive impact on the market, apart from the USD obviously. The Chinese central bank said it would cut the RRR rate by 50 bos, while last year the PBOC only cut the RRR twice by 25 basis points each.

The People’s Bank of China announced this morning that they carry out a 50-bps reduction in the reserve requirement ratio (RRR). The weighted rate was 7.40%, so this cut should take it to 6.90%, which will liberate ¥1 trillion into the Chinese economy which has been showing great difficulty in certain sectors, such as real estate.

Stock Markets Testing All-Time Highs

Stock markets have turned bullish again as they trade around all-time highs, with tech shares leading the way higher, as they keep a decent upward pace. We saw today Netflix earnings, which exceeded revenue expectations in Q4 which is helping the risk trade further. Commodity dollars are also witnessing some decent demand in late European session, with the Aussie up 0.3% to 0.6620 and NZD/USD up 0.6% to 0.6150 for the day. The CAD, on the other hand, has only gained 30 pips against the USD as markets are waiting for the BOC to hold its meeting in a while. SO, everything is going up at the moment while the USD is going down, although this sort of price aciton is likely to stop soon.

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