- USD/CNH extends gains near 7.2935 on Monday.
- China’s PBoC cut its main lending rate for the first time since August 2023 in a bid to shore up the economy.
- Mounting bets on a Fed rate cut this year could weigh on the dollar and limit the pair’s upside.
The USD/CNH pair is trading in positive territory for the third consecutive day around 7.2935 during Asian trading hours on Monday. The pair’s rally is fueled by a surprise rate cut by the People’s Bank of China (PBoC). The release
On Monday morning, the Chinese central bank announced a cut in the one-year Lending Prime Rate (LPR), the benchmark for loans that banks provide to their customers, by 10 basis points (bps) from 3.45% to 3.35% and slashed the five-year LPR from 3.95% to 3.85%. In addition, the PBoC cut its main short-term policy rate for the first time since August 2023. The 7-day reverse repurchase rate was lowered from 1.8% to 1.7%.
On the other hand, the prospect of an upcoming rate cut by the Federal Reserve (Fed) could undermine the US Dollar (USD) and limit the pair’s upside. New York Federal Reserve President John Williams said on Friday that a rate cut could be warranted in the coming months, but not at the July policy meeting.
Meanwhile, Fed Governor Christopher Waller said inflation will continue to moderate toward the Fed’s 2% target in the coming months, adding that the time to lower the policy rate is drawing closer. According to the CME FedWatch tool, investors are now pricing the odds of a move at the July meeting at less than 5%, with a near-complete rate cut firmly expected in September.
Interest Rates FAQs
Financial institutions charge interest rates on loans to borrowers and pay them out as interest to savers and depositors. These are influenced by base interest rates, which are set by central banks based on economic developments. Central banks are typically mandated to ensure price stability, which in most cases means targeting an underlying inflation rate of around 2%.
If inflation falls below target, the central bank can cut base interest rates, in order to stimulate lending and boost the economy. If inflation rises substantially above 2%, the central bank typically raises base lending rates to try to reduce inflation.
In general, higher interest rates help strengthen a country’s currency by making it a more attractive place for global investors to park their money.
Higher interest rates influence the price of Gold because they increase the opportunity cost of holding Gold rather than investing in an interest-bearing asset or depositing cash in the bank.
If interest rates are high, the price of the US Dollar (USD) usually rises and since Gold is priced in dollars, the price of Gold falls.
The federal funds rate is the overnight rate at which U.S. banks lend to each other. It is the official interest rate typically set by the Federal Reserve at its FOMC meetings. It is set within a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the figure quoted.
Market expectations for the Federal Reserve funds rate are tracked by the CME’s FedWatch tool, which measures the behavior of many financial markets in anticipation of future Federal Reserve monetary policy decisions.
Source: Fx Street

I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.