SHANGHAI: China’s yuan eased on Thursday, reflecting the broad strength of the dollar after the U.S. inflation accelerated to a more than four-decade high.
U.S. consumer prices in June were 9.1% higher than a year earlier, the largest increase since 1981, leaving the Federal Reserve most certain to raise interest rates by another 75 basis points at the end of the month.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate for the yuan at 6.7265 per dollar, 17 pips firmer than the previous fix.
In the spot market, the onshore yuan opened at 6.7300 per dollar and was changing hands at 6.7242 at midday, 43 pips weaker than the previous late session close.
Currency traders said losses in the yuan against the backdrop of dollar strength were limited by a central bank signal of less accommodative monetary policy in the second half of the year.
“The PBOC looks satisfied with the current policy setting and we expect the central bank to stick to the targeted easing to support real economic activities and boost the weak sectors,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank, noting such a stance should be “mildly supportive to the yuan”.
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Some traders said comments in an official publication reiterating increased resilience of the FX market also prevented the local currency from sinking further in morning trading.
“Despite fluctuations in economic data in the short term, the COVID situation is improving, pro-growth policy is taking effect, and the basic balance of payments including trade in goods and direct investment is strong,” the China Forex Magazine, a publication owned by the country’s FX regulator, said in an article published late on Wednesday.
Separately, markets will quickly shift their attention to China’s second-quarter gross domestic product and activity indicators due on Friday, when the PBOC is also expected to roll over 100 billion yuan worth of medium-term policy debt.
Analysts polled by Reuters estimated that second-quarter GDP had been just 1% higher than a year earlier, the annual growth rate slowing from the 4.8% seen in the first quarter.
By midday, the global dollar index rose to 108.298 from the previous close of 107.957, while the offshore yuan was trading at 6.7265 per dollar.
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