SHANGHAI: China’s yuan firmed against the US dollar on Thursday after comments from a Federal Reserve official reinforced market participants’ views that current US rates are enough to lower inflation which should pave the way for cuts later this year.
John Williams, President of the Federal Reserve Bank of New York, said on Wednesday that the Fed has made progress on lowering inflation, including for services, and sees the rate of price increases slipping to 2.25% in 2024 and 2% by 2025.
“We are clearly moving in the right direction,” he said, adding “we still are a ways from our price stability goal.”
Alvin Tan, head of FX strategy at RBC Capital Markets, said Williams’ comments “added to the recent Fedspeak voicing confidence that policy rates were restrictive enough to bring inflation down to the Fed’s target. However, he also reiterated that the ‘restrictive stance of policy’ would have to be maintained for ‘some time’.”
The global dollar index fell to 102.259 from the previous close of 102.362.
Markets are awaiting US inflation data later in the day to gauge the country’s monetary path, which could affect the dollar-yuan pair.
The spot yuan opened at 7.1700 per dollar and was changing hands at 7.1620 at midday, 104 pips firmer than the previous late session close and 0.75% away from the midpoint. The spot rate is allowed to trade with a range 2% above or below the official fixing on any given day.
China’s yuan slips as policy easing expectations grow
The offshore yuan was trading 101 pips weaker than the onshore spot at 7.1721 per dollar.
Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.1087 per US dollar, 580 pips stronger than Reuters’ estimate.
“The fix continues to convey PBOC’s desire for a stable yuan amid speculation of near-term monetary policy easing and fears of deflation. Clearly, the central bank is not willing to loosen its grip on the yuan,” Maybank analysts said in a note.
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