US dollar and yen both fell against the euro Monday as China raised interest rates as part of its prudent monetary policy. According to the report, US dollar fell from last week’s $1.3122 to $1.3164 per euro in London, while the yen traded from 108.77 to 108.33 per euro. Against the Japanese currency, the dollar traded slightly higher from 82.88 to 82.67 yen. Analysts said that the current rate hike in China has likely suppressed demand for the American currency as a refuge. The yen likewise fell, leading several other Asian currencies downward as China’s rate hike damped expectations for spending in Asian export market such as South Korea, Malaysia and Thailand. Reports said that the central bank of China increased its one-year lending and deposit rates by 25 basis points on Saturday as part of its plan to quell inflation. The benchmark lending rate rose to 5.81 percent compared with 7.47 percent before cuts from late 2008 to counter the global financial crisis. Analysts said that there is a likelihood of further increase up to 6.56 percent by the end of 2011. The deposit rate, on the other hand, rose to 2.75 percent compared with 5.1 percent annual pace of inflation last month. An economist in Singapore said that market rallies on Asian currencies are not expected. However, the rate hike in China has long been expected by many market players. Due to the increase on interest rates, most Asian shares rose on Monday trading in Asia while the Dollar Index, which tracks the dollar against its major counterparts, fell as much as 0.3 percent to 80.223.

Source