RTRS: Stock market losses aid safe-haven currencies, pound jumps after UK data
A 6 percent drop in Chinese stocks on Tuesday drove currency investors into safe-haven currencies such as the yen and the Swiss franc, albeit in thin volumes.
The British pound, though, was an outperformer, boosted by better-than-expected inflation data for July, including an uptick in core inflation, which hit a five-month high. Sterling rose to a seven-week high of $1.5717 after the data.
The inflation numbers bolstered expectations that the Bank of England will raise interest rates in coming months and helped sterling gain 0.9 percent against the euro.
Earlier, China's main Shanghai Composite and Shenzhen 300 indices both lost more than 6 percent .SSEC .CSI300 as investors bet that demand in China will cool further, weighing on the trade-reliant region and throwing more doubts on a global recovery.
The dollar fell 0.15 percent against the yen to trade at 124.25 yen JPY= while against the Swiss franc it was down 0.2 percent at 0.9770 francs CHF=. The euro was also down 0.2 percent against the franc at 1.0805 francs.
"There is a risk-off environment, given the drop in the Chinese stock markets. Investors are cautious about whether the Fed will raise rates, given a slowdown in China and global deflationary conditions. All these are weighing on the dollar," said Petr Krpata, FX strategist at ING.
Against a basket of major currencies, the dollar was flat on the day, trading at 96.79 .DXY, having started the day on a firm note. It was still holding above a one-month low of 95.926, set last week when Beijing's surprise devaluation dented expectations that the Fed will raise rates in September.
China's central bank has since tempered the yuan's slide, soothing anxiety of a further sharp devaluation - a scenario that markets feared could lead to a global currency war.
However, the latest slide in Chinese stocks has re-ignited fears that Beijing may still be intent on a deeper devaluation.
Many still expect the Fed to move in September, though much depends on the robustness of U.S. data and global stock markets in the coming weeks.
"As long as China doesn't continue to aggressively devalue the yuan, we will see it (a rate hike) in the next six months, and the U.S. dollar will be stronger," said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.
