Yuan slips against strong US dollar with Iran, China economic reports in focus

HONG KONG: The yuan eased from a three-year high against a strong US dollar on Wednesday as investors were concerned about the US-Israeli war on Iran and a pair of Chinese economic reports.

China’s export-focused services activity expanded at the fastest pace in three months in May, while the country’s official manufacturing purchasing managers’ index fell last month on weak domestic demand.

 Meanwhile, China’s central bank on Wednesday said the volume of its reverse repo operations was zero for the day, the first since August 2024.

 Analysts said the move was due to ample liquidity in the market amid sluggish loan demand.

The onshore yuan was 0.03% lower at 6.7673 against the dollar at 0345 GMT after trading in a range of 6.7646 to 6.7694.

A stronger dollar due to renewed tensions in the Middle East has also weighed on the yuan.

 Before the market opened, the People’s Bank of China set the yuan’s midpoint rate at 6.8184 per dollar, 511 pips weaker than a Reuters estimate. The spot yuan is allowed to trade 2% on either side of the fixed midpoint each day.

China’s trade-weighted CFETS yuan basket index rose to 101.05 in morning trade, the highest point since January 20, 2025, based on a Reuters calculation.

 The yuan is flat against the dollar so far this month and is 3.4% firmer this year.

 “We think the PBoC would still maintain its monetary policy stance accommodative and make more push to encourage bank lending and credit growth in the near term,” said Xiaojia Zhi, chief China economist at Credit Agricole CIB.

 The offshore yuan traded at 6.7675 yuan per dollar, down about 0.04% in Asian trade.

Private Bank LGT expects China’s offshore yuan to continue to outperform as China has emerged as a relative winner from the global energy crisis.

The bank forecasts USD/CNH to reach 6.60 in 12 months.