SHANGHAI/SINGAPORE: China’s yuan eased against the dollar on Thursday, despite the central bank setting the daily midpoint fixing stronger than expected, in what investors interpreted as an official attempt to rein in weakness in the currency.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.2208 per dollar, 107 pips weaker than the previous fix of 7.2101.
However, the official guidance rate was much stronger than market had expected, traders and analysts said, the same as what was seen on Monday and Tuesday. And it was 332 pips firmer than Reuters’ estimate of 7.2540.
China’s yuan firms as PBOC grows wary of declines
Market participants closely monitor the central bank’s daily midpoint setting, and they widely take deviations between the official rate and their predictions as a sign showing the PBOC’s stance towards the foreign exchange market.
“The chance remains high that the PBOC may follow up with more fixing guidance or other FX policy measures if the yuan weakness gathers pace again in the coming days,” analysts at HSBC said in a note.
In the spot market, the onshore yuan opened at 7.2288 per dollar and weakened to a low of 7.2499 at one point, its weakest level since November. It last traded at 7.2462 as of 0246 GMT, 72 pips weaker than the previous late session close.
Its offshore counterpart followed suit and eased to 7.2555 per dollar as of 0246 GMT.
“The (yuan) midpoint was fixed much stronger than expected, suggesting the central bank is keen to control the pace of depreciation,” said a trader at a Chinese bank.
Separately, in global markets, the dollar firmed after the heads of the respective central banks reaffirmed the stark divergence in their policy paths at a European Central Bank conference overnight.
Addressing a World Economic Forum summit in Tianjin on Tuesday, China’s Premier Li Qiang reiterated that China will take steps to boost demand, but stopped short of unveiling any concrete policies.
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