LONDON (AFX) - The yen rose across the board after news that the Chinese central bank had raised its one-year deposit and lending rates by 27 basis points.
It said in a statement posted on its website that the interest rate hike is aimed at guiding investment and credit growth, noting that the overly fast growth in investment remains a 'major problem'.
Steve Pearson at HBOS said the knee jerk reaction to the Chinese rate hike was to buy yen and other Asian currencies.
The rate increase may eventually weigh on commodity prices and on commodity currencies such as the Australian, Canadian and New Zealand dollars, he added.
The move is likely to intensify speculation that China could allow the yuan to appreciate further. However, the latest rate hike may also indicate that the Chinese authorities are preferring to cool the economy via monetary policy measures rather than by adjusting the exchange rate.
The news helped the yen undo some of its earlier losses, which had seen the Japanese currency fall to record lows against the euro, after Bank of Japan governor Toshihiko Fukui suggested that Japanese interest rates will be kept low.
Fukui was cited by the Kyodo news agency as saying that the BoJ will keep monetary policy loose if inflationary risks do not emerge, and that interest rates will be adjusted gradually.
Elsewhere, the dollar held onto its overnight gains against the euro following news of a much better-than-expected Philadelphia Federal Reserve manufacturing survey yesterday which jumped to 18.5 index points in August from 6.0 a month earlier.
On a quiet day in terms of economic data, trading was rangebound, however, though market players will be looking out for the latest University of Michigan survey on US consumer confidence this afternoon.
The pound remained weak meanwhile, trading at two-week lows against the euro and the dollar after a string of weaker UK data earlier this week -- including falls in UK retail sales and the CPI inflation rate -- dampened hopes that the Bank of England will raise interest rates further in the coming months.
The pound gained little from a further solid UK mortgage lending and money supply data this morning, as well as better-than-expected public finances figures.
London 0940 GMT Singapore 3.55 pm (0755 GMT)
US dollar
yen 115.67 down from 115.98
sfr 1.2325 up from 1.2307
Euro
usd 1.2834 unchanged
stg 0.6808 down from 0.6811
yen 148.39 down from 148.85
sfr 1.5812 up from 1.5796
Sterling
usd 1.8848 up from 1.8838
yen 217.90 down from 218.45
sfr 2.3230 up from 2.3182
Australian dollar
usd 0.7611 up from 0.7596
stg 0.4037 up from 0.4031
yen 87.99 down from 88.11 jessica.mortimer@afxnews.com jkm/abr COPYRIGHT Copyright AFX News Limited 2005. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited