China’s central bank said it will give weight to economic factors abroad and tweak its policy if necessary, a recognition of external constraints on monetary easing as the yuan remains under pressure to depreciate.

The People’s Bank of China will “choose the opportunity to adjust and optimise the intensity and pace of policies based on domestic and foreign economic and financial conditions,” it said in a quarterly monetary policy report published Thursday. The publication provides a rare glimpse into the PBOC’s outlook and policy plans.

In another indication that external factors now carry greater sway among policymakers, the PBOC omitted a phrase pledging to “set our own agenda.” It used that expression frequently in recent years to signal that the domestic economy’s needs primarily drive decisions, even if that meant lowering interest rates when central banks in other major economies hiked them.

The new guidance is a veiled acknowledgment of adverse factors weighing on the yuan — from sticky US inflation to Donald Trump’s tariffs — that have led China to delay monetary stimulus, according to analysts. Other factors, such as a rebound and stabilisation of economic growth since September, are also likely at play.

The central bank is facing a tough policy trade-off as the yuan has come under greater strain over the past few months, making it difficult to implement more decisive monetary easing since that risks worsening the depreciation pressure on the currency.

“The apparent contradiction in operations arises from the central bank’s multiple concerns — financial stability in treasuries and one-sided bets in markets in general. It will eventually have to let fundamentals determine market movements, allowing lower yields and a weaker yuan, especially in the case of higher US tariffs inflicting more pain on the economy,” said Bloomberg Economics.

Many investors and analysts expected a cut to banks’ reserve requirement ratio, which will unlock liquidity for more lending, to take place over the past two months, but it has yet to materialise. Economists polled by Bloomberg in January predicted the RRR to be cut by 50 basis points in the first quarter, along with a reduction of the policy rate by 10 basis points, according to the median forecasts.

Such expectations began to shift in recent weeks as the central bank stepped up it support to the yuan. Following the PBOC’s report, some analysts renewed their warnings that officials may skip the “high-profile” easing of a cut to the reserve ratio or rates in the short term, given its strong language on ensuring a steady yuan.

“There is a risk that the PBOC will rely on low-profile instruments — such as repo operations — to manage interbank liquidity and skip high-profile easing measures like RRR cuts,” Goldman Sachs Group Inc analysts including Xinquan Chen said in a research note. “FX stability may take priority and constrains the PBOC’s ability to cut policy rates in the near term as tariff uncertainties remain significant.”

Citigroup Inc economists now anticipate interest rate and RRR cuts will only take place in the second quarter due to a lack of urgency in the PBOC’s report. In the circumstances of the latest US-China trade war, “the PBOC could try to maintain a stable currency when the two sides could still prepare for negotiations,” they wrote in a note Friday.

The PBOC reaffirmed a pledge to keep the yuan “basically stable on a reasonable, equilibrium level” in the report, as well as to defuse risks of any overshooting in the exchange rate.

China’s economic growth picked up after the government rolled out a broad stimulus package including sizeable rate cuts in September. But the economy is still having to contend with longer-term challenges including persistent deflation, a property slump and sluggish consumer confidence.

The PBOC vowed to use tools including rates, the RRR and open-market operation to keep liquidity ample. It reiterated that promoting a rebound in inflation will be an important consideration for monetary policy, and that it will guide credit to expand “reasonably.”

The central bank also warned that geopolitical tensions and changes in trade policies in “certain countries” could push inflation higher in major economies.

RRR tool

The PBOC used a special section of the report to discuss its tool of regulating how much cash banks must set aside in reserves. By lowering the average ratio from a peak of 20.1% to 6.6% now, the central bank injected liquidity into the financial system and supported economic growth, it said.

It vowed to further improve the instrument in the future, without giving more details. This could mean that more types of assets will be allowed to be counted as reserves, which should permit banks to expand lending and support the economy, analysts including Sun Binbin at Tianfeng Securities wrote in a note Friday.

Source: Theedgemarkets

The Pound Sterling (GBP) trades with caution against its major peers on Friday. The British currency struggles for a firm footing as investors are concerned over the United Kingdom's (UK) economic outlook despite upbeat Gross Domestic Product (GDP) data for December and the last quarter of the previous year.

In the latest monetary policy meeting, the Bank of England (BoE) halved its GDP forecasts for the year to 0.75%, which was a big blow for Chancellor of the Exchequer Rachel Reeves, who has been promising to lift economic growth. The BoE stated that higher global tariffs would slow down their growth rate.

The UK Office for National Statistics (ONS) reported on Thursday that the economy surprisingly expanded by 0.1% in the fourth quarter of 2024, while economists projected it to have contracted at a similar pace. In December, the GDP growth rate was robust at 0.4%.

Going forward, the next triggers for the Pound Sterling will be the labor market data for the three months ending December and the Consumer Price Index (CPI) data for January, which will be released on Tuesday and Wednesday, respectively. Both economic indicators will influence market speculation about whether the Bank of England (BoE) will reduce interest rates again in the March meeting. The BoE cut its key borrowing rates by 25 basis points (bps) to 4.5% on February 6.

Daily digest market movers: Pound Sterling holds onto Thursday’s gains against US Dollar

The Pound Sterling trades near Thursday’s high around 1.2560 against the US Dollar (USD) in Friday’s European session. The GBP/USD pair exhibits strength as the US Dollar weakens after United States (US) President Donald Trump directed the Commerce Department and trade representatives to devise a plan to match tariffs on each product with every country.

President Trump said in the Oval Office on Thursday, "I've decided for purposes of fairness that I will charge a reciprocal tariff." Trump added, "It's fair to all, no other country can complain." The President further added that tariffs will “level the playing field for all US companies.”

This scenario weighed heavily on the US Dollar, as market participants anticipated that Trump would impose reciprocal tariffs immediately. These assumptions were based on his tweet at Truth Social, “Three great weeks, perhaps the best ever, but today is the big one: reciprocal tariffs!!! Make America great again!!!", which came in early North American trading hours on Thursday.

In Friday’s European session, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, appears fragile near an over two-week low at around 107.00.

Market participants expect higher tariffs to accelerate local manufacturing activities in the US. This scenario would boost labor demand and push price pressures higher, forcing Federal Reserve (Fed) officials to maintain a restrictive monetary policy stance for longer.

According to the CME FedWatch tool, the Fed is expected to keep interest rates steady in the next three policy meetings. There is an almost 50% chance that the Fed can cut interest rates in the July meeting.

In Friday’s session, investors will focus on the US Retail Sales data for January, which will be published at 13:30 GMT. The US Census Bureau is expected to report that Retail Sales, a key measure of consumer spending, declined by 0.1% after expanding 0.4% in December.

Technical Analysis: Pound Sterling gains ground above 1.2500

The Pound Sterling revisits a six-week high at around 1.2570 against the US Dollar. The GBP/USD pair strengthened after breaking above the 50-day Exponential Moving Average (EMA), which stands around 1.2490, on Thursday.

The 14-day Relative Strength Index (RSI) advances to near 60.00. A bullish momentum would activate if the RSI (14) sustains above that level.

Looking down, the February 3 low of 1.2250 will act as a key support zone for the pair. On the upside, the 38.2% and 50% Fibonacci retracements at 1.2610 and 1.2767, respectively, will act as key resistance zones.

Source: FXSTREET

Source: AP

Source: Euronews

WTI price edges higher as a JPMorgan report reveals global Oil demand has risen to 103.4 million barrels per day.

President Trump has instructed officials to review reciprocal tariffs on countries imposing tariffs on US goods.

Oil prices may face downward pressure due to a possible relaxation of restrictions on Russian producers.

West Texas Intermediate (WTI) crude Oil price extends its gains for the second successive day, trading around $71.50 per barrel during early European hours on Friday. Oil prices find support from increasing fuel demand and a delay in US tariff plans.

According to a report by JPMorgan on Friday, global Oil demand has risen to 103.4 million barrels per day, marking a 1.4 million bpd increase year-over-year. "After a slow start, demand for mobility and heating fuels picked up in the second week of February, suggesting the gap between actual and projected demand will soon close," the report noted.

On Thursday, US President Donald Trump directed commerce and economic officials to study reciprocal tariffs against countries imposing tariffs on US goods, with recommendations due by April 1. This delay allows for negotiations, potentially reducing trade tensions.

However, the upside of the Oil prices was limited amid easing supply risks and speculation over a potential relaxation of restrictions on Russian producers. This follows Trump’s directive for US officials to initiate peace talks after Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy expressed interest in ending the conflict in separate phone calls with him.

Dollar-denominated crude Oil may face demand concerns from the United States (US), the world’s largest Oil consumer, as rising inflation strengthens expectations that the Federal Reserve (Fed) will maintain its hawkish policy stance.

Source: FXSTREET

Source:MT Newswires