SHANGHAI: China’s yuan briefly hit a one-week low against the US dollar on Thursday, mirroring losses in regional peers, as investor worries over a further escalation in the Middle East conflict continued to dent sentiment.
President Donald Trump kept the world guessing about whether the United States will join Israel’s bombardment of Iranian nuclear sites to broaden the Israel-Iran conflict.
The onshore yuan fell to a trough of 7.1934 per dollar, the weakest level since June 11, before changing hands at 7.19 as of 0331 GMT. Its offshore counterpart traded at 7.1941.
Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.1729 per dollar, its strongest since March 19 and 187 pips firmer than a Reuters’ estimate of 7.1916.
The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.
Based on Thursday’s official guidance, the yuan’s value against its major trading partners, as measured by CFETS basket index, stood at 95.88, down 5.5% year-to-date.
Meanwhile, the yuan gained about 1.5% against the dollar during the same period.
Some analysts said that the falling yuan’s value on a trade weighted basis could help the world’s second-largest economy gain export competitiveness at a time trade prospects between Beijing and Washington remain uncertain.
China’s yuan slips as Middle East tensions rise
“While we cannot rule out a firmer Chinese yuan against the US dollar due to its broad weakness, we think the PBOC prefers a steady or somewhat weaker yuan against the dollar, but not excessively so,” said Tommy Wu, senior economist at Commerzbank.
“This would translate into a weaker yuan against the currencies of non-US trading partners which would help boost Chinese exports to the world,” Wu said, expecting the yuan to trade at 7.3 per dollar by the end of this year.
Separately, Chinese domestic market had little reaction to Federal Reserve’s decision to keep interest rates unchanged.
In a widely expected move, the Fed held rates steady on Wednesday, with policymakers signalling they still expect to cut rates by half a percentage point this year, although not all of them agreed on a need for rate cuts.
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