SHANGHAI: China’s yuan slipped to an almost 14-month low against the dollar on Monday in light trading in the approach to the year-end, pulled down by rising US bond yields.
The yuan is on course to post its third straight year of losses, weighed down by widening yield differentials between the world’s two largest economies and US President-elect Donald Trump’s tariff threats.
As of 0315 GMT, the onshore yuan was 0.05% lower at 7.2988 to the dollar, not far from the psychologically important 7.3 mark, which was last seen in November 2023.
Its offshore counterpart traded at 7.3048 yuan per dollar.
Half-day volume stood at $8.4 billion, well below the normal $15 billion around midday.
Expectations of a slower pace of rate cuts by the Federal Reserve next year has supported Treasury yields and widened their premium over Chinese counterparts, which have been falling rapidly in the past few months to record low levels in anticipation of fresh stimulus to aid the economy.
Pan Gongsheng, governor of the People’s Bank of China (PBOC), told the official People’s Daily over the weekend that there is still “some room” to cut the reserve requirement ratio (RRR) further, while monetary policy adjustments should be intensified.
The gap between China’s benchmark 10-year government bond yield and the US 10-year yield is the widest in 24 years, boosting demand for dollar-denominated assets and pressuring the yuan.
China’s yuan set to end the week near 13-month low
Prior to market opening, the PBOC set the midpoint rate , around which the yuan is allowed to trade in a 2% band, at 7.1889 per dollar, and 914 pips firmer than a Reuters’ estimate of 7.2803.
The PBOC’s midpoint rate has stayed on the firmer side of the key 7.2 level and stronger than market projections since mid-November, which traders and analysts widely interpret as a sign of rising unease over recent yuan declines.
“The spot rate is well kept on the firmer side of the 7.3 per dollar, which markets are taking as a key level for the time being,” said a trader at a foreign bank.
He added that market participants will closely monitor the central bank’s stance to determine when it loosens its grip on the official guidance fix before making huge bets on the currency. Separately, markets were also looking to December manufacturing data due on Tuesday for more clues on the health of the economy.
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