Yuan steady as investors eye first Fed meeting under Warsh

SHANGHAI: China’s yuan held steady against the dollar on Wednesday, as investors awaited the Federal Reserve’s first policy decision under Chair Kevin Warsh while they considered remarks from top regulators at an annual forum in Shanghai.

The spot yuan opened at 6.7570 per dollar and was trading at 6.7565 as of 0230 GMT, 10 pips firmer than the previous late session close as it hovered near its lowest level in more than three years.

Policymakers may need to loosen monetary policy further, and guide money-market rates lower to prevent the currency from gaining too much ground, CICC analysts said in a note.

 The yuan is up 3.5% this year, moving closer to the 6.7 level last seen in early 2023.

China’s central bank governor said on Wednesday that the bank would improve the mechanism for regulating short-term interest rates, and promote the offshore yuan business in Shanghai.

The People’s Bank of China also said it would refine its temporary overnight repo and reverse repo operations to improve flexibility and efficiency, effective immediately.

Prior to the market opening, the PBOC set the midpoint rate at 6.8096 per dollar, 527 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 been setting its daily yuan guidance at levels weaker than market projections, suggesting it wants to manage the pace of appreciation and maintain stability.

The offshore yuan fetched 6.7565 yuan per dollar, up about 0.02% in Asian trade.

The dollar index, which measures the greenback against a basket of six currencies, was 0.039% lower at 99.51.

Official data released Tuesday showed China’s retail sales unexpectedly contracted in May for the first time in over three years, even as industrial output accelerated, highlighting a divergence in the recovery and casting doubt on the sustainability of yuan strength.

Globally, investors are focused on Warsh’s first meeting as Fed chair, with concerns over the Middle East easing.

“The immediate policy implications will be limited,” said Blerina Uruci, chief US economist at T. Rowe Price. “I expect no changes to the Fed funds rate and a short policy statement that would not include a bias to easing policy going forward.”

She said the shift would align with Warsh’s desire to move away from forward guidance and could appease FOMC hawks who had pushed back against an easing bias in recent meetings.