SHANGHAI: China’s yuan eased against the dollar on Wednesday as investors awaited the outcome of the Federal Reserve’s policy meeting.

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.8715 per dollar, 48 pips firmer than the previous fix of 6.8763.

The onshore yuan opened at 6.8746 per dollar and weakened to 6.8870 at midday, 82 pips softer than the previous late session close.

All eyes are on the Federal Open Market Committee (FOMC) meeting in the wake of the biggest meltdown in the banking sector since the 2008 financial crisis, with a rate decision due later on Wednesday, currency traders said.

“If the Fed surprises the market with a more hawkish tone, there will be an opportunity to short USD. For the yuan, investors could consider hedging their positions at around 6.9 per dollar,” traders at a Chinese bank said in a memo to clients.

They expected the Fed to deliver a 25-basis-point interest rate hike and a softening of tone in light of the instability in the banking sector.

US Treasury Secretary Janet Yellen said on Tuesday she was focused on restoring the confidence of bank depositors and would not speculate on regulatory changes.

China’s yuan weakens ahead of Fed rate decision

“Fed Chair Jerome Powell will likely weigh in on Yellen’s assurances that regulators had the back of uninsured depositors and would safeguard the banking sector,” analysts at DBS said in a note.

Ken Cheung, chief Asian FX strategist at Mizuho Bank, said US regulators were ready to take steps to ensure financial stability so that the Fed could separately focus on fighting inflation.

By midday, the global dollar index fell to 103.18 from the previous close of 103.256, while the offshore yuan was trading at 6.886 per dollar.

The one-year forward value for the offshore yuan traded at 6.7347 per dollar, indicating a roughly 2.25% appreciation within 12 months.