HONG KONG: The yuan firmed against a broadly weaker US dollar on Friday, as new homes prices data released a day earlier provided another sign that China’s economy is gathering strength.
The yuan and other Asian currencies benefitted from an improvement in risk sentiment as multi-billion dollar lifelines for troubled US and European banks shored up investor confidence.
The spot yuan opened at 6.8860 per dollar and was changing hands at 6.8752 at midday, 246 pips stronger than the previous late session close and 0.43% stronger than the midpoint.
The People’s Bank of China set the midpoint rate at 6.9052 per dollar prior to market open, firmer than the previous fix at 6.9149. The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day.
“It is plausible that confidence can stabilise further if we do not have any more bank failures especially over coming days,” said Christopher Wong, an FX strategist at OCBC Bank.
The yuan’s upside was capped, however, by investors’ uncertainty over whether the banking sector turmoil would persuade the Federal Reserve to pause its interest rate increases, especially as the European Central Bank raised interest rates by 50 basis points (bps) on Thursday.
“There are still concerns about US interest rates staying higher for longer despite the ongoing banking sector turmoil,” said Kirk Wong, global market & FX strategist at Everbright Securities International.
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Investors are betting that the Fed will press on with its inflation-fighting campaign with a 25 bps hike that would lift the Fed’s benchmark rate to a 4.75%-5% range.
The global dollar index fell to 104.146 from the previous close of 104.418.
The offshore yuan was trading 0.02% away from the onshore spot at 6.8737 per dollar.
The one-year forward value for the offshore yuan traded at 6.7252 per dollar, indicating a roughly 2.21% appreciation within 12 months.
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