SHANGHAI: China’s yuan bounced off a 2007 trough against a weaker dollar on Friday, but it slipped to a 19-month low against currencies of its major trading partners, as a trade row between the world’s two largest economies showed few signs of abating.
Selling resumed in financial markets after US President Donald Trump’s temporary pause on tariffs for many countries sparked a brief rally a day earlier.
Trump’s 90-day respite didn’t include China, however. Instead, he ratcheted up duties on Chinese imports to 145%.
The trade war comes at a challenging time for China as policymakers have struggled to revitalise economic growth after the COVID-19 slump, weighed down by a protracted property market downturn and deflationary forces.
However, the People’s Bank of China (PBOC) will not allow sharp yuan declines and has instructed major state-owned lenders to reduce dollar purchases, people with knowledge of the matter told Reuters.
A weaker yuan would make Chinese exports cheaper. However, a sharp decline could also increase unwanted capital outflows and risk financial instability, analysts and economists said.
To reflect the broad dollar weakness in global markets, the PBOC lifted its official yuan midpoint guidance fix for the first time in seven days on Friday.
Prior to the market open, the PBOC set the rate , around which the yuan is allowed to trade in a 2% band, at 7.2087 per dollar.
That was 5 pips firmer than the previous fix and 1,017 pips firmer than a Reuters’ estimate of 7.3104.
The PBOC has slightly loosened its grip on the currency this week by allowing official guidance to weaken past the key threshold of 7.2, although it came in much stronger than market projections, in what traders see as an official attempt to keep the yuan steady.
The onshore yuan rebounded from a trough of 7.3518 per dollar hit a day earlier, a level last seen during global financial crisis, to 7.3201 around 0526 GMT. But it remained down 0.9% so far this month.
Its offshore counterpart was at 7.3227 as of 0526 GMT, down 0.13%. It hit a record low of 7.4288 on Tuesday.
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