Dollar, yen fall; China helps growth-linked currencies

Mon Nov 18, 2013 4:36am EST
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By Anirban Nag

LONDON (Reuters) - The dollar and the yen fell on Monday against growth-linked currencies which drew support from higher stock markets as investors cheered prospects of more economic reform in Asian powerhouse, China.

Chinese shares posted their biggest gain in more than two months on Monday, as Beijing announced its most sweeping economic and social reforms in nearly three decades. .CSI300

Those gains saw global shares hit record highs .MIWD00000PUS but the major currencies of the dollar, yen and euro on balance remain more concerned with the debate over how long major central banks will keep monetary stimulus easy and the liquidity taps open.

"Financial markets have started the week on a positive footing, where the prospect of reform in China and continued low rates in developed nations buoy equity markets," said Tom Levinson, currency strategist at ING.

"Funding currencies, such as dollar, yen and the Swiss franc are soft as investors look for value and yield."

The dollar came off highs last week as the Federal Reserve's chief-in-waiting encouraged faith it would keep it $85-billion-a-month bond purchases intact this year. Most investors now expect the Fed to start paring stimulus only in March 2014, meaning there will be more dollars flushing through the global financial system.

The European Central Bank, however, has also pledged to keep rates near record lows and may yet take more action while the Bank of Japan is also set to be aggressive in providing monetary stimulus to reach its inflation goal. The BOJ will hold a regular policy meeting this week and is expected to maintain its ultra-loose policy.

That flood of global liquidity and the promise to keep rates low should continue to put pressure on low-yielding currencies like the dollar, the yen, the Swiss franc and even the euro pegged back against currencies like the Australian and New Zealand dollars.   Continued...

Yuan and Yen banknotes are seen in this picture illustration taken in Tokyo May 29, 2012. REUTERS/Issei Kato