SHANGHAI: China’s yuan eased against a strengthening US dollar on Wednesday, touching the weakest level in nearly two months, as traders reduced bets on a March rate cut by the Federal Reserve.
The dollar index climbed to a one-month high after Fed Governor Christopher Waller said the US should not rush towards cuts in its benchmark interest rate until it was clear lower inflation would be sustained.
The offshore yuan weakened in late session on Tuesday to a nearly two-month low.
State banks started selling US dollars for yuan at Wednesday’s market opening in what was seen as an attempt to defend the psychologically important 7.2 per dollar level, traders said.
The spot yuan opened at 7.1950 per dollar and touched 7.1999 per dollar shortly after the market opened, the lowest level since November 2023.
Closely-watched China economic growth data released on Wednesday was not a big surprise to traders and analysts.
China’s economy grew 5.2% in the fourth quarter of 2023 from a year earlier, official data showed, missing analysts’ expectations slightly but still making it possible for Beijing to meet its annual growth target despite a shaky start to the year. For the full year, the economy grew 5.2%.
“On monetary policy, I think China will take a ‘wait and see’ approach due largely to renewed yuan depreciation pressure,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
China’s central bank surprised some market participants by holding its policy rate steady on Monday when many had expected a cut.
China’s yuan hits lowest since mid-December on policy easing bets
Prior to the market’s opening on Wednesday, the People’s Bank of China set the midpoint rate around which the yuan is allowed to trade in a 2% band, at 7.1168 per US dollar, 34 pips weaker than the previous fix at 7.1134.
The spot yuan opened at 7.1950 per dollar and was changing hands at 7.1952 as of 0237 GMT, 80 pips weaker than the previous late session close.The global dollar index fell to 103.334 from the previous close of 103.357.
The offshore yuan was trading 184 pips weaker than the onshore spot at 7.2136 per dollar.