SHANGHAI: China’s yuan hovered near a five-month low against the dollar on Monday after the central bank set the official guidance rate at the weakest level in two months.
The yuan was trading at 7.2468 per dollar at 0308 GMT, 3 pips weaker than the previous close and just a fraction ahead of a 5-month low of 7.2478 hit in early trade.
The currency is down 2.1% this year, pressured by its relative low yields versus other currencies and outflows of foreign investment from an anaemic stock market.
Prior to the market’s 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 7.1066 per dollar, the weakest level since February 28.
Spot yuan opened at 7.2400 per dollar and was changing hands at 7.2468 at midday, only 19 pips from the daily downside limit.
The yuan is facing mounting challenges as sticky inflation in the US has pushed back the expected timing of the Federal Reserve’s rate-cutting cycle in a boost to the dollar.
A persistently weak Japanese yen also continues to drag down its Asian peers.
The Japanese yen hit its weakest levels since April 1990 on Monday.
Given that the yuan is an anchor for Asian and other emerging market (EM) currencies as well as a restraint on overall FX volatility, its decline would exacerbate EM FX pressures, Barclays analysts said in a note.
Yuan near five-month low against dollar
The global dollar index rose to 105.966 from the previous close of 105.938.
Market participants are watching closely for China’s factory activity data due on Tuesday and the Federal Reserve’s May 1 policy review.
The offshore yuan was trading 132 pips weaker than the onshore spot at 7.26 per dollar.
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