SHANGHAI: China’s yuan advanced against an easing dollar on Thursday after the US Federal Reserve hiked interest rates as expected, while investors hoped for more stimulus after Beijing said it would step up support for the economy.
The US dollar dipped after the Fed on Wednesday raised rates for the first time since 2018 by the expected quarter of a percentage point. Some traders and analysts said. the market had already priced in the rate move and the Fed rhetoric was not getting more hawkish than expected.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at a one-week high of 6.3406 per dollar, 394 pips or 0.6% firmer than the previous fix 6.38.
In the spot market, the onshore yuan opened at 6.3500 per dollar and was changing hands at 6.3459 at midday, 59 pips firmer than the previous late session close.
Market sentiment improved after Vice Premier Liu He, China’s economic tsar, on Wednesday urged the roll-out of more support for the economy and said policymakers would be cautious with measures for capital markets.
China’s stock markets, which have seen sharp outflows in recent weeks, rebounded strongly following the comments.
“The latest meeting stepped up its monetary policy support by saying that monetary policy should take the initiative to deal with the uncertainty … This raised the probability of a last-minute rate cut before the end of March,” said Tommy Xie, head of Greater China research at OCBC Bank.
Xie said China could lower the benchmark loan prime rate (LPR) at the March fixing next Monday.
China Construction Bank analysts, however, say there is a greater chance the PBOC’s next move will be to cut banks’ reserve requirement ratios again to inject more liquidity into the system, and “the time window for domestic monetary policy operations could be before the Fed’s May meeting”.
By midday, the global dollar index fell to 98.376 from the previous close of 98.618, while the offshore yuan was trading at 6.3577 per dollar.
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