SHANGHAI: China’s yuan weakened to a near one-month-low on Friday, pressured by dollar strength following strong US economic indicators overnight and as geopolitical tensions in the Taiwan Strait kept investors cautious.
Prior to the market open, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1102 per US dollar, weaker than the previous fix of 7.1098.
The spot yuan opened at 7.2420 per dollar and was changing hands at 7.2455 at midday, 33 pips weaker from the previous late session close.
The dollar headed for its largest weekly rise in a month and a half on Friday, after May figures showed US business activity accelerated to the highest level in just over two years, damping most currencies including the yuan.
The robust economic data along with hawkish minutes from the Fed’s last meeting earlier in the week has led traders to dial back their bets on rate cuts this year, with markets now pricing in just 35 basis points of easing in 2024, versus expectations of 150 bps of cuts at the start of the year.
“PBoC tends to allow for more weakness in the RMB when the external environment favours higher-for-longer rates and USD strength,” said Maybank analysts in a note.
Investors also closely monitored regional tensions as China’s military carried out a second day of war games around Taiwan on Friday, with drills to test their ability to “seize power” and control key areas, exercises it has said were launched to punish Taiwan’s President Lai Ching-te.
The global dollar index fell to 105.105 from the previous close of 105.108.
The offshore yuan was trading at 7.2587 per dollar.
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