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SHANGHAI: China’s yuan weakened against the US dollar on Friday, amid US warnings to China, should it support Russia’s military operations in Ukraine, and worries that more coronavirus lockdowns in Chinese cities could crimp economic growth.

US President Joe Biden is expected to tell Chinese President Xi Jinping that Beijing will pay a price if it supports Russia during a phone call scheduled for later in the global day. China has denied having any such intentions.

Onshore yuan dipped to as low as 6.3595 per dollar in morning trade, after the People’s Bank of China set a weaker midpoint rate.

Amid rising COVID cases, Chinese firms are asking workers to eat, sleep and work in isolation bubbles in order to keep factories running.

“The surge in coronavirus cases in China and associated lockdown in various cities including Shenzen and parts of Shanghai will put more downwards pressure on Chinese growth and add to global supply concerns,” Shane Oliver, chief economist at AMP wrote in a note.

Yuan advances after Fed rate hike, investors hope for more China stimulus

“The 2020 experience where Chinese growth briefly slumped then rebounded indicates investors should not ignore this.”

Adding to downward pressure on the yuan, Beijing vowed this week to take monetary policy measures to invigorate the economy, while the US Federal Reserve raised its policy rate by 25 basis points and signalled much faster interest rate hikes this year than previously expected, which would erode China’s yield premium, and potentially make yuan assets less attractive.

Xie Yaxuan, economist at China Merchants Securities said that capital outflows will continue to put depreciation pressure on the yuan in the short term.

China’s stock market saw heavy outflows over the past week amid growth concerns and Sino-US tensions over securities regulation.

Guoyuan Securities said in a note that although recent yuan volatility will not herald a depreciation trend, it signifies the end of yuan’s appreciation trajectory.

Vice Premier Liu He on Wednesday vowed to roll out market-friendly measures to stabilise the capital market.

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