China's yuan eases as weak euro, COVID flare-ups weigh

SHANGHAI: China's yuan weakened on Tuesday to stand near a one-month low as the euro teetered near parity to the dollar, denting market sentiment and pressuring other non-dollar currencies.

China's ongoing battle to contain COVID-19 cases, with several cities adopting fresh measures, added to pressure on the Chinese currency. "In addition, concerns of COVID cases rising also weigh on the yuan," Maybank analysts said.

The People's Bank of China set the midpoint rate at 6.7287 per dollar prior to market open, weaker than the previous fix 6.696.

In the spot market, the yuan opened at 6.7398 per dollar and was changing hands at 6.7350 at midday, 210 pips weaker from the previous late session close.

The euro hovered close to a 20-year low near parity to the dollar amid concerns of an energy crisis in Europe.

The biggest single pipeline carrying Russian gas to Germany began annual maintenance on Monday, with flows expected to stop for 10 days, but governments, markets and companies are worried the shutdown might be extended because of the war in Ukraine.

The single currency fell as low as $1.0006 on Monday, pushing the dollar index up to 108.47, the highest since October 2002.

The outlook for China's economic recovery has influenced the yuan's recent performance, traders said, while the focus is now on the country's trade data and US inflation.

Recent flare-ups in domestic COVID-19 cases will weigh on the pace of the recovery. Nomura analysts estimate 31 cities were implementing various COVID restrictions as of Monday, up from 11 a week earlier, highlighting "the risk of falling growth."

Markets are closely monitoring US consumer price data due on Wednesday, with economists polled by Reuters expecting the index to print an 8.8% annual rate for June.

The Federal Reserve is expected to lift rates by 75 basis points for a second straight time at its July 26-27 meeting. Fed funds futures traders are pricing for its benchmark rates to rise to 3.50% by March, from 1.58% currently.

New bank lending in China leapt in June, rising more than expected, while broad credit growth quickened, as the central bank stepped up efforts to revive the pandemic-hit economy.

The offshore yuan was trading -0.19% away from the onshore spot at 6.7475 per dollar.