SHANGHAI: China’s yuan weakened slightly on Friday, as the reports of more restrictions from Washington on Chinese goods weighed on the currency, although trading ranges were modest ahead of key US inflation data due next week.
The yuan is down 1.8% this year, pressured by relatively low yields versus other currencies and a struggling property market, which is weighing heavily on the economy.
Prior to the 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 7.1011 per US dollar, firmer than the previous fix 7.1028.
In the spot market, the onshore yuan opened at 7.2250 per dollar and was changing hands at 7.2252 at midday, 40 pips weaker than the previous late session close.
The Biden administration added 37 Chinese entities to a trade restriction list on Thursday, including some for allegedly supporting the spy balloon that flew over the United States last year, heightening tensions between Beijing and Washington.
Additionally, a source told Reuters that President Joe Biden is set to announce new China tariffs as soon as next week targeting strategic sectors.
Yuan steady as central bank sets firmest fixing in a month
The full announcement is expected to largely maintain existing levies.
“We expect relative yuan stability with the help of foreign exchange policy, but potential geopolitical issues in the second half of 2024 could be another test,” said HSBC analysts in a note.
The dollar inched up in Asian trading on Friday after retreating overnight on the back of US data showing further signs of a cooling labour market and hence higher odds of Fed rate cuts this year.
Markets will be closely watching April US producer price index and the consumer price index out next week for signs that inflation has resumed its downward trend towards the Fed’s 2% target rate.
HSBC analysts said depreciation pressure for the yuan could return, citing about $66 billion onshore and offshore yuan dividend payments between May and August, and a rising chance that the PBoC will conduct more monetary easing in the second quarter ahead of a start of the Fed rate cuts.
The global dollar index rose to 105.314 from the previous close of 105.227.
The offshore yuan was trading at 7.2286 per dollar.
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