HONG KONG: China’s yuan traded lower against dollar on Wednesday after comments by US Federal Reserve Chair Jerome Powell indicated that interest rates could stay higher for longer.
The yuan was trading at 7.2396 per dollar at 0309 GMT, down a touch from the previous close. The central bank’s daily benchmark fixings and support from state-owned banks have slowed its decline.
The currency hit a five-month low of 7.2422 on Tuesday, and is down roughly 2% this year, pressured by its relative low yields versus other currencies and outflows of foreign investment from an anaemic stock market.
Top US central bank officials including Powell backed away on Tuesday from providing any guidance on when interest rates may be cut, saying instead that monetary policy needs to be restrictive for longer.
That further dashed investor hopes for significant easing this year and put pressure on Asian currencies.
The People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1025 per US dollar prior to market open, firmer than the previous fix 7.1028.
An elevated strengthening bias implied by the daily fixing rate points to a desire to limit the pace of currency depreciation from the PBOC, Goldman Sachs analysts said in a note, adding that USD/CNY remains “in a tug-of-war between depreciation pressures and policy controls”.
China reported better-than-expected economic growth in the first quarter on Tuesday.
The improving economic conditions leaves room for the central bank to keep its policy rate on hold in the near term, DBS analysts said in a note.
In the spot market, the spot yuan opened at 7.2360 per dollar and was changing hands at 7.2396 at midday. The offshore yuan was trading -0.29% away from the onshore spot at 7.2603 per dollar.
The global dollar index fell to 106.242 from the previous close of 106.257.
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