SHANGHAI: China’s yuan eased against the US dollar on Friday as remarks from the annual economic meeting failed to excite investors, while the dollar reached a 2-1/2-week high.
China pledged to boost the budget deficit, issue more debt, and ease monetary policy to sustain economic growth, according to a state media report from the Central Economic Work Conference held on Dec. 11-12.
A separate readout of the meeting from state media kept a pledge to “maintain the basic stability of the exchange rate at a reasonable and balanced level”.
“It’s worth noting that China’s leadership has so far shown significant reluctance to undertake major direct stimulus to lift consumption,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
“I really don’t see that changing until another shock hits or is about to hit the economy, the most likely being a second US-China trade war next year,” Tan said.
Meanwhile, the dollar rose to a 2 1/2-week high against major peers on Friday, on track for its best week in a month, amid bets that the Federal Reserve will cut interest rates next week but then take a patient approach to further reductions.
China’s 10-year and 30-year sovereign bond yields fell over 4 basis points each to record lows of 1.7650% and 1.9950%, respectively.
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 7.1876 per dollar, 869 pips firmer than a Reuters’ estimate.
China’s yuan inches higher as investors await key economic meeting
The outlook for the yuan remains weak as China’s growth outlook continues to be uncertain despite the strong policy easing signals from the government, said analysts at Commerzbank.
“The PBOC will likely continue to smooth out volatility in the yuan exchange rates, but it may allow the yuan to depreciate gradually to partly offset the impact of the looming Trump tariffs.”
The spot yuan opened at 7.2700 per dollar and was last trading 73 pips lower than the previous late session close at 7.2773 as of 0251 GMT and 1.25% weaker than the midpoint.
The yuan is down 0.5% against the dollar this month, and 2.4% weaker this year.
Citi’s Asia FX and rates strategists remain positioned for a weaker yuan and lower rates in China, waiting for the PBOC to potentially deliver a Reserve Requirement Ratio (RRR) cut as early as Friday, according to a note from the investment bank.
Reuters reported this week, citing sources, that China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher US tariffs when Donald Trump returns to the White House.
The offshore yuan traded at 7.2835 yuan per dollar, down about 0.08% in Asian trade.
The dollar’s six-currency index was 0.131% higher at 107.1.
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