SHANGHAI: China’s yuan weakened to a fresh 16-month low against the dollar in early trading on Monday, despite a persistent strengthening bias in the official midpoint fixing and central bank assurances that it will keep the currency stable.
The yuan breached the key threshold of 7.3 per dollar for the first time since 2023 on Friday, dragged lower by a triple-whammy of a broadly stronger greenback, falling Chinese yields and rising trade tensions with other economies.
On Monday, the onshore yuan fell to a trough of 7.3277 per dollar in early deals, the softest level since September 2023.
It last traded at 7.3257 as of 0221 GMT. Its offshore counterpart followed the weakening trend to hit a low of 7.3640 per dollar before trading at 7.3522 as of 0221 GMT.
Major state-owned banks were seen selling some dollars in the onshore spot market in an attempt to slow the pace of yuan declines, but it was unable to offset huge amounts of corporate dollar buying, currency traders said.
Prior to 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 7.1876 per dollar, 2 pips firmer than the previous fix and 1,159 pips firmer than Reuters’ estimate of 7.3035.
The PBOC’s midpoint rate has stayed on the firmer side of the key 7.2 level and stronger than market projections since mid-November, which traders and analysts widely interpret as a sign of rising unease over recent yuan declines.
Separately, China’s central bank is expected to ramp up offshore yuan bill sales in Hong Kong in January, with the scale far exceeding previous issuance, state-owned news outlet Yicai reported on Monday, citing sources close to the central bank.
China’s yuan nears 14-month low amid yields plunge, rate cut bets
Financial News, a central bank publication, also reiterated on Monday that the PBOC has an ample toolkit and the experience to react to the yuan’s depreciation.
On Friday, the PBOC said it would keep the yuan exchange rate basically stable while lowering banks’ reserve requirement ratios and interest rates at “an appropriate time”.
“In our view, these indicate the PBOC would like to manage the pace of yuan depreciation against the dollar and avoid sharp depreciation before the US tariff announcement,” economists at Goldman Sachs said in a note.
They added that sharp moves in the yuan during the 2018-19 US-China trade war mainly occurred after the formal announcement of tariffs and expected a similar pattern in PBOC’s FX management this year.
US President-elect Donald Trump has pledged to impose tariffs across the board after he takes office on Jan. 20.
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