SHANGHAI: China’s yuan inched lower against the dollar on Thursday, with investors anxiously awaiting fresh US economic data for guidance on the monetary policy trajectory in the world’s largest economy and an interest rate decision in China.
Tuesday’s hotter-than-expected US consumer price index (CPI) reignited concerns that inflation could remain sticky, and traders said they will need more evidence from data including US retail sales, the producer prices index (PPI) report and jobless claims due later on Thursday to gauge the policy stance.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate around which the yuan is allowed to trade in a 2% band, at 7.0974 per dollar, 44 pips weaker than the previous fix of 7.0930.
The central bank continued its months-long practice of setting the rate at levels firmer than market projections, widely viewed by traders as an attempt to keep the currency stable.
Thursday’s midpoint was 901 pips firmer than a Reuters estimate of 7.1875.
In the spot market, the onshore yuan opened at 7.1889 per dollar and was changing hands at 7.1926 at midday, 56 pips weaker than the previous late session close. And the midday level was not far from the psychologically important 7.2 per dollar level.
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Currency traders said while the dollar’s movements and the Federal Reserve’s rate outlook remained the key factors in deciding the yuan’s value, some correction in the dollar index earlier this week had attracted corporate buying interests.
“USD/CNH is likely to remain quite steady near term around the 7.18-7.23 levels as markets continue to assess the performance of China’s economy and the timing of a Fed easing in addition to US-China tensions,” Maybank analysts said in a note.
With the Fed widely expected to hold rates steady at its meeting next week, attention will be on the US central bank’s updated economic projections.
On Friday, market attention will be on China’s policy rate decision, when the central bank is expected to roll over 481 billion yuan ($66.88 billion) worth of medium-term lending facility (MLF) loans.
“We expect more monetary policy easing in China to support growth,” economists at Barclays said in a note.
“We expect a 10-basis-point cut in the policy rate in both Q2 and Q3, and look for a 25-50bp cut in banks’ reserve requirement ratio (RRR) in Q2 and another 25-50bp RRR cut in Q3.”
PBOC Governor Pan Gongsheng said last week the bank would keep the yuan basically stable and sent a dovish message to the market by saying China had “rich monetary policy tools at its disposal.”
By midday, the global dollar index rose to 102.852 from the previous close of 102.789, while the offshore yuan was trading at 7.1988 per dollar.
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