SHANGHAI: The yuan slipped against the dollar on Tuesday after the central bank set its weakest fixing in nearly nine months and as traders await US inflation and Chinese economic data due later in the week.
Prior to the market 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 7.1479 per dollar, its weakest since Nov. 2023. It was 281 pips firmer than a Reuters estimate.
The spot yuan opened at 7.1780 per dollar and was last trading at 7.1794 as of 0316 GMT, 50 pips lower than the previous late session close and 0.44% weaker than the midpoint.
The yuan is up 0.6% against the dollar this month, in line with a surging yen, as an unwinding of short positions snowballed following a surprise rate hike by the Bank of Japan and weakness in US economic indicators.
However, the Chinese currency is still 1.1% weaker this year, pressured by domestic woes around a moribund property sector, anaemic consumption and volatile stock markets.
Market participants are awaiting US economic data including the inflation report to gauge the Federal Reserve's policy path that could affect the yuan-dollar pair.
"Now there is fear that the July consumer price index (CPI) print, which comes out this week, could derail the near certainty that the Fed will cut in September," said Kristina Hooper, chief global market strategist at Invesco.
China’s yuan weakens ahead of US inflation reading, domestic data
"I highly doubt that given the totality of recent data that indicates a continued disinflationary trend, most notably wage growth in July's US jobs report," Hooper said.
China also releases economic data including retail sales and industrial output on Thursday.
The yen seems to have stabilised after wild swings last week. Movements in the Chinese and Japanese currencies are highly correlated during periods of market volatility.
Japan's parliament plans to hold a special session on Aug. 23 to discuss the central bank's decision last month to raise interest rates, government sources said on Tuesday.
China's sovereign bonds yields dropped on Tuesday, having surged in the past few sessions. Falling yields also complicate the PBOC's efforts to stabilise the weakening yuan.
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