HONG KONG: China’s yuan weakened slightly against the dollar on Wednesday as the country continued to face deflationary pressure, while traders awaited upcoming US inflation data to gauge the timing of Federal Reserve rate cuts.
Prior to market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1075 per US dollar, weaker than the previous fix 7.1057.
The spot yuan opened at 7.1957 per dollar and was changing hands at 7.1990 at midday, 9 pips weaker than the previous late session close.
The central bank maintained its months-long practice of setting the rate at levels firmer than market projections, widely viewed by traders as an attempt to defend the currency.
Wednesday’s midpoint was 948 pips firmer than a Reuters estimate of 7.2023.
“China is facing a combination of weak domestic activity, weak exports, risks of entrenched deflation and a precarious external-balance position,” analysts at Barclays said in a note.
China’s yuan steadies as investors await US inflation data
Adding to the pressure, the property sector shows little signs of stabilizing. Property giant Country Garden said on Wednesday a liquidation petition had been filed against it for non-payment of a loan worth $205 million.
Barclays analysts expect the yuan to weaken further in the weeks ahead, but added that China has strong political determination to maintain a relatively stable yuan against the dollar.
Meanwhile, all eyes are on US inflation data and initial jobless claims on Thursday for clues on the likely path of US rates this year.
The global dollar index rose to 103.877 from the previous close of 103.829.
The offshore yuan was trading -0.21% away from the onshore spot at 7.2143 per dollar.
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