Yuan slips as geopolitical tensions, growth concerns weigh

SHANGHAI: China’s yuan eased against the US dollar on Wednesday, as escalating fighting in the Middle East underpinned safe-haven demand for the greenback while concerns about the country’s slowing growth also weighed.

The spot yuan opened at 6.7770 per dollar and was fetching 6.7708 as of 0213 GMT, 43 pips lower than the previous late session close.

“The combination of a growth shortfall and prospects of further policy easing is leading to a slight depreciation bias for the yuan,” analysts at Commerzbank said in a note, adding that the People’s Bank of China is expected to limit excessive volatility through its daily fixing mechanism.

China’s cabinet on Tuesday vowed to take steps to ensure the country meets its full-year growth target, after the economy missed Beijing’s official target range in the second quarter.

Prior to the market opening, the PBOC set the midpoint rate at 6.7933 per dollar, 196 pips weaker than a Reuters’ estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

In the Middle East, the US military said late on Tuesday it began its latest strikes on Iran, marking the 11th consecutive night of American attacks. The greenback had risen over the past four sessions, hovering near a one-week high.

Adding to the geopolitical tensions, Trump is poised to unleash fresh tariffs on dozens of countries as soon as this week, media reported on Tuesday.

The offshore yuan traded at 6.7714 yuan per dollar, down about 0.05% in Asian trade.

The dollar index, which measures the greenback against a basket of six currencies, was 0.020% lower at 101.15.

BNY analysts said that after months of persistent yuan buying, investor positioning is turning more cautious, with growing FX hedging activity suggesting investors are paring back their exposure.

 This raises the risk of near-term offshore yuan weakness if equity sentiment deteriorates further, the analysts said. China’s benchmark Shanghai Composite Index was down 7% over the past month.

The yuan has risen about 3% against the dollar year-to-date, lagging the Australian dollar’s 5% gain over the same period, but remains among the top-performing emerging market currencies.

Investors are now shifting their attention to an upcoming meeting of the Communist Party’s Politburo, the country’s top decision-making body, expected around the end of July.

 Policymakers are expected to set the economic policy agenda for the second half of the year, which could affect the yuan’s outlook, traders said.