After dropping 199 pips from the London opening of 1.4279 to trade as low as 1.4080, the EUR/USD is eerily quiet ahead of the Chinese GDP and Industrial Production data to be reported at 9:00 pm New York time. A drop in EUR/USD is a gain in the dollar.
News of China’s plans to curb lending sent the dollar up sharply at the beginning of the Asian session earlier today. At 1:00 am London time, or 9 a.m. in Beijing, the dollar surged against the euro, gaining as much as 100 pips within 30 minutes.
The Chinese government today announced its decision to restrict big banks from lending for the rest of January. The Associated Press also reported that Chinese Banking Regulatory Commission Chairman Liu Mingkang projected bank lending for 2010 to fall by $0.3 trillion from last year.
This is the latest development of an increasingly hawkish Chinese monetary policy. Last week, China raised reserve requirements for its banks by 50 basis points.
The S&P 500 dropped 1.06 percent, losing 12.19 points. Crude oil prices fell 1.97 percent to trade at $76.1 dollars as investors fear lower global demand on the possibility that governments may now increasingly withdraw stimulus measures.
According to a survey by Dow Jones Newswires, China’s GDP is set to grow 10.8 percent year-on-year in the fourth quarter. Industrial output for December is projected to rise 19.6 percent in December year-on-year.
Investors look to those figures for clues on China’s monetary policy. If the figures indicate strong growth, the Chinese government may take further measures to restrict credit on inflation concerns.