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China’s yuan dropped to the lowest level in more than six months against a resurgent US dollar on Wednesday, as broad greenback strength in global markets eclipsed state banks’ efforts to underpin the local currency.
Sources told Reuters that China’s major state-owned banks were acquiring dollars in the offshore foreign exchange market before selling them in the spot market to stabilise the currency, in an apparent attempt to prevent the yuan from falling too fast.
The move comes as US Treasury yields pushed to a near four-week peak lifting the greenback higher. Traders have subsequently repriced bets on the Federal Reserve’s policy path, caught off-guard by a sharp improvement in a US consumer confidence measure for May that drove treasury yields and the dollar higher.
The yuan touched 7.2487 per dollar in morning trade, its lowest level against since Nov. 17, 2023.
The currency is down 2.1 per cent this year, pressured by relatively low yields versus other currencies and a struggling property market.
“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,” Maybank analysts wrote in a note.
Prior to the market’s opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2 per cent band, at 7.1106 per dollar, its weakest since Jan. 23 and over 1,400 pips stronger than Reuters’ estimate.
The spot yuan opened at 7.2470 per dollar and last traded at 7.2484 as of 0611 GMT, 43 pips softer than the previous late night close.
“The 7.25-level is the current resistance level for the onshore yuan against the dollar, as once this level breaks, trading would be nearly halted,” said a trader at an international bank.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First Published: May 29 2024 | 12:42 PM IST
