China with new stimulus solutions

Wednesday's session on international financial markets started very lively. Investors are reacting to PBoC's announcements on cutting reserve requirements, which are intended to strengthen China's weakening economy and ambiguous PMI data from France and Germany, which by their tone do not facilitate considerations regarding future decisions of the European Central Bank.

The Chinese yuan is gaining

The PBoC Governor today announced his intention to reduce the reserve requirement ratio (RRR) by 50 basis points on February 5, which strengthened optimism in the Chinese market after the recent wave of sell-off. The weighted rate before the reduction was 7,40%. This will ultimately free up 1 trillion yuan in the economy. Moreover, yesterday the Chinese establishment announced that it intends to use approximately USD 300 billion from foreign accounts of listed companies under state control to support the current difficult situation on the stock market.

Following this news, the Chinese yuan is gaining today against the US dollar and other currencies FX market.

France towards stagnation

In Europe, the No. 1 topic is the preliminary readings of PMI data for services and industry for January. At 09:50 we got readings from France and Germany, which surprised us with higher values ​​for the industry and worse values ​​for the services sector. The commentary on the reports noted that France will probably stagnate in the first quarter of 2024, but the risk of this scenario is downward. On the other hand data for Germany indicate that the recession will continue. The ECB is currently in a very challenging position because, on the one hand, it is struggling with weakening economic momentum, and on the other hand, the spectrum of possible interest rate cuts is reduced by rising wages.

The Japanese yen is currently the best performer on the FX market. Large declines in the broad market are visible in pairs related to the US dollar. The Polish zloty is slightly strengthening this morning. We currently pay PLN 4,0302 for the dollar, PLN 4,3803 for the euro, PLN 4,6495 for the franc, and PLN 5,1219 for the pound.

Source: Mateusz Czyżkowski, XTB