Yuan nears two-week low

China's yuan fell to a near two-week low against the firming dollar on Friday after the central bank fixed the official midpoint at the lowest in five months, but losses were capped by rising corporate dollar selling. The yuan was also on course for a losing week, with U.S trade threats adding to the risks facing China's already cooling economy.
The dollar strengthened against a basket of major currencies to reflect losses in the euro, which was headed for its worst weekly loss in 19 months after a cautious European Central Bank signalled it will keep interest rates at record lows well into next year. Prior to the market opening, the People's Bank of China (PBOC) lowered the midpoint rate to 6.4306 per dollar, the weakest since January 18. The rate was 344 pips or 0.5 percent softer than the previous fix of 6.3962.
The move in Friday's fixing was also the biggest one-day weakening in percentage terms since Feb. 9. Reflecting the weaker fixing and strength in the greenback, spot yuan opened at 6.4204 per dollar and was changing hands at 6.4146 at midday, 141 pips weaker than the previous late session close. If the yuan finishes the late night session at the midday level, it would have lost 0.09 percent to the dollar for the week, after gaining 0.16 percent a week earlier.
Traders said broad weakness in the euro has piled pressure on the yuan, but the market was still wary of pushing it too far beyond the key 6.4 per dollar level, which is believed to be closely watched by authorities. "Corporate clients continued selling dollars when the yuan was trading weaker than 6.4," said a trader at a Chinese bank in Shanghai. Several traders said their banks' advice to clients was to purchase the greenback above 6.4 and sell when the spot rate eases to below the level.
On trade, US President Donald Trump has made up his mind to impose "pretty significant" tariffs and will unveil a list targeting $50 billion of Chinese goods on Friday, an administration official said. Beijing has warned that it was ready to respond. While it is not clear when Trump will activate the measures, rising Sino-US trade tensions will put additional pressure on China's economy, which is starting to show signs of slowing under the weight of a multi-year crackdown on riskier lending.
While China's stock markets fell on Friday ahead of the US announcement, foreign exchange traders were taking a wait-and-see approach until more details of the US measures emerge. Washington had published an initial list months ago. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 98.73, firmer than the previous day's 98.35.
The global dollar index rose to 94.97 from the previous close of 94.772. The offshore yuan was trading 0.01 percent weaker than the onshore spot at 6.4153 per dollar. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.5145, 1.29 percent weaker than the midpoint.