SHANGHAI: China’s yuan firmed on Thursday as the dollar eased on renewed bets of a US Federal Reserve easing cycle this year, with market participants awaiting a policy decision from the European Central Bank later in the day for its interest rate outlook.
Prior to the market open, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1108 per US dollar, weaker than the previously fixed 7.1097.
In the spot market, the onshore yuan opened at 7.2441 per dollar and was changing hands at 7.2447 at midday, 30 pips stronger than the previous late session close.
Expectations that the Fed would likely cut interest rates in September, after data this week hinted the US labour market was easing.
Markets have priced in nearly 50 basis points of Fed rate cuts this year, with the first expected to come in September.
China’s yuan weakens, defying broader Asia gains
Investor focus is also on the US nonfarm payroll (NFP) report for May due on Friday, with a Reuters poll of economists expecting it to increase by 185,000 jobs.
Meanwhile, a rate cut is also widely expected from the ECB later in the day.
Maybank analysts expected the dollar index to be traded between 104.00 and 105.00 but it might drop a little lower below that range if NFP reading is favourable.
Adtionally, a private sector survey showed on Wednesday that China’s services activity in May accelerated at the quickest pace in 10 months, while staffing levels expanded for the first time since January, pointing to a sustained recovery in the second quarter.
“We cannot rule out a slow creep up for the USDCNH and USDCNY given unfriendly geopolitical environment where trade tensions are rising with the US and EU,” said Maybank analysts in a note.
The global dollar index fell to 104.102 from the previous close of 104.268.
The offshore yuan was trading at 7.2562 per dollar.