Yuan holds steady as PBOC eases guidance, dollar firms

HONG KONG: China’s yuan was little changed against the dollar on Wednesday after the central bank set a weaker daily midpoint, with bolstered expectations of further US rate hikes capping its strength and supporting the greenback.

 The onshore yuan last traded 0.09% higher at 6.6746 to the dollar. Its offshore counterpart traded at 6.6736 per dollar, up about 0.04% in Asian trade.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 6.7191 per dollar, its weakest since October 22 and 336 pips weaker than a Reuters estimate.

The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The central bank has weakened its daily official yuan guidance this month after consistently strengthening it for a year, which traders and analysts have interpreted as an attempt to manage the pace of the currency’s appreciation.

 In another move that could temper gains for the yuan, several Chinese banks are sharply lifting dollar deposit rates, in some cases above US benchmarks, Reuters reported earlier this week.

“With the market’s broad expectation of further appreciation no longer holding, USD/RMB has moved in a relatively narrow range in the short term,” analysts at Nanhua Futures said in a note.

 “However, October export data remained strong. Although momentum has eased somewhat, the trade surplus is still relatively large, suggesting that the RMB’s broader appreciation trend has not yet come to an end,” they added.

 The dollar held its gains to be near a two-week high in early Asian trade on Wednesday after hotter-than-expected US inflation data and hawkish comments from Federal Reserve officials fuelled bets the US central bank will raise rates next month.

Fed funds futures now imply a 91.9% chance of a 25 basis point rate rise next month and a 9.1% chance of a 50-basis-point move, according to CME Group’s FedWatch tool.