SHANGHAI: China’s yuan slipped on Thursday but slowed its losses as the central bank signalled unease about the currency’s recent sharp declines toward the critical 7 per dollar level by setting a stronger-than-expected fixing.
Prior to market opening, the People’s Bank of China (PBOC) set the first strengthening midpoint rate in five days at 6.9148 per dollar, 12 pips firmer than the previous fix 6.9160.
The guidance came in higher than market expectations for the 12th straight trading day, despite huge declines in the spot rate a day earlier, traders said. It was also 56 pips stronger than Reuters’ estimate of 6.9204.
“The PBOC is not comfortable with one-way depreciatory expectations, even if they are comfortable with some yuan weakness,” Carlos Casanova, senior economist for Asia at Union Bancaire Privée (UBP), said in a note.
“We can’t exclude the possibility of additional macroprudential measures, including a stronger strengthening bias in the counter-cyclical adjustment mechanism.”
Casanova expects the yuan to hit the key 7 mark by the year-end and sees chances for it to weaken further in 2023.
China’s yuan extends losses, nears key level despite firmer-than-expected fix
In the spot market, the onshore yuan opened at 6.9550 per dollar and was changing hands at 6.9666 at midday, 14 pips softer than the previous late session close.
The yuan has lost 3.2% to the dollar since mid-August, pressured by a buoyant dollar and a domestic economic slowdown.
“Policymakers have taken some modest steps to support the yuan but … the impact is likely to be negligible as long as the monetary policy divergence with the US remains in play,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.
Earlier this week, the central bank said it would cut the amount of foreign exchange that financial institutions must hold as reserves to slow the yuan’s recent depreciation.
The yuan is not the only victim. Recent broad dollar strength driven by a hawkish Federal Reserve has pressured non-dollar currencies. In the region, the yen has touched a 24-year low against the greenback this week.
Some traders said investors will pay close attention to comments by Fed Chair Jerome Powell later in the session for more clues on the US central bank’s tightening trajectory.
By midday, the global dollar index stood at 109.814, while the offshore yuan was trading at 6.972 per dollar.
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