SHANGHAI: China’s yuan dropped to the lowest level in more than six months against the US dollar on Wednesday, after US Treasury yields pushed to a near four-week peak lifting the greenback higher.
Traders have subsequently repriced their bets on the Federal Reserve’s policy path, caught off-guard by a sharp improvement in a US consumer confidence measure for May that drove treasury yields and the dollar higher.
The yuan touched 7.2487 per dollar in morning trade, its lowest level against since Nov. 17, 2023.
The currency is down 2.1% this year, pressured by relatively low yields versus other currencies and a struggling property market.
“We cannot rule out a slow creep up for the USDCNH and USDCNY given unfriendly geopolitical environment where trade tensions are rising with the US and EU,” Maybank analysts wrote in a note.
Prior to the market’s opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1106 per dollar, its weakest since Jan. 23 and over 1,400 pips stronger than Reuters’ estimate.
The spot yuan opened at 7.2470 per dollar and was changing hands at 7.2483 at midday, 42 pips weaker than the previous late session close and 1.94% away from the midpoint.
“The 7.25-level is the current resistance level for the onshore yuan against the dollar, as once this level breaks, trading would be nearly halted,” said a trader at an international bank.
The global dollar index rose to 104.728 from the previous close of 104.614.
The offshore yuan was trading 165 pips weaker than the onshore spot at 7.2648 per dollar.
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