SHANGHAI: China’s yuan slipped to a two-month low against the U.S. dollar on Friday, weighed down by broader strength in the greenback and soft domestic manufacturing data, even as the central bank set a firmer-than-expected yuan guidance rate.
China’s onshore yuan eased to 7.2116 per dollar, the weakest level since May 21, while the offshore yuan dropped to 7.2216, the lowest since May 20.
China’s factory activity deteriorated in July, as a softening of new business growth led manufacturers to scale back production, a private-sector survey showed on Friday.
The dollar headed for its best week in almost three years against its major peers, maintaining momentum on Friday after U.S. President Donald Trump set new tariff rates on dozens of trade partners.
Beijing is facing an August 12 deadline to reach a durable tariff agreement with Washington, after they reached preliminary deals in May and June to end escalating tit-for-tat tariffs and a cut-off of rare earth minerals.
Markets had largely priced in the extension of the 90-day truce between China and the U.S., but the third-party transshipment tariffs could weigh on Chinese exports going into the second half of the year, said DBS analysts in a note.
“Investors await concrete stimulus measures following the Politburo meeting. Policymakers are watchful over the weak aggregate demand and emphasising the importance of anti-involution,” they said, referring to the details of a meeting of China’s highest political body released on Wednesday in which they vowed to crack down on disorderly competition among Chinese companies.
The spot yuan opened at 7.2024 per dollar and was last trading at 7.2048 as of 0224 GMT, 86 pips lower than the previous late session close and 0.82% weaker than the midpoint.
Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.1496 per dollar, 537 pips firmer than a Reuters’ estimate, the second-largest deviation since April 30. The move signalled the PBOC’s commitment to currency stability.
The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.
A sudden escalation in China-U.S. trade tensions, a sharp reversal in global risk sentiment, or unexpected shifts in domestic policy could trigger renewed volatility and slow the yuan’s appreciation pace, said analysts at UBS Global Wealth Management’s Chief Investment Office in a note.
The yuan is 1.3% firmer this year.
They maintained their year-end yuan forecast at 7.1 per dollar.
Meanwhile, the recent upward momentum in China’s benchmark 10-year government bond yield moderated this week, with yields easing from a peak of 1.75% to 1.70%.
The offshore yuan traded at 7.2167 yuan per dollar, down about 0.09% in Asian trade.
The dollar index, which measures the U.S. currency against six peers, was 0.06% higher at 100.09, the highest since May 29.
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