SHANGHAI: China’s yuan eased against the dollar on Monday as the greenback rose after a robust US jobs report dashed expectations of a near-term rate cut, but China’s central bank continued to use the official guidance fix to keep the currency stable.
The dollar touched its highest level since Dec. 11 after data showed the US jobs market was stronger than expected, which could make it difficult for the Federal Reserve to start cutting interest rates in May as envisaged by financial markets.
Market will likely continue to re-assess easing expectations, after a coordinated pushback from Federal Reserve Chair Jerome Powell and the US payrolls report, said Charu Chanana, head of currency strategy at Saxo in Singapore.
“This would mean that Asian central banks will also have to wait longer before embarking on their rate cut cycles,” Chanana said.
The Fed can be “prudent” in deciding when to cut its benchmark interest rate, with a strong economy allowing central bankers time to build confidence inflation will continue falling, Powell said in an interview aired on Sunday.
Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.107 per US dollar, 1018 pips firmer than Reuters’ estimate, the biggest discrepancy since November 2023.
Traders and analysts interpreted the strong bias at the fix as an attempt to stabilise the yuan.
China’s yuan inches up, gains capped by policy easing bets
The spot yuan opened at 7.1965 per dollar and was changing hands at 7.1974 at midday, 34 pips weaker than the previous late session close.
China’s services activity expanded at a slightly slower pace in January as new orders fell, a private-sector survey showed on Monday, suggesting a soft start for the world’s No.2 economy amid tepid demand and a property slump.
Also not helping the yuan strength were falling bond yields in China, with 10-year China government bond yields dropping below 2.4%, lowest level in more than two-decades.
The global dollar index rose to 104.069 from the previous close of 103.922.
The offshore yuan was trading 170 pips weaker than the onshore spot at 7.2144 per dollar.