Yuan at 3-1/2-year high as US inflation dims Fed rate hike prospects
SHANGHAI: China’s yuan firms to a 3-1/2-year high against the dollar on Thursday, as US inflation data weighed on the greenback and dimmed prospects for an imminent Federal Reserve rate hike. US consumer prices were in line with expectations, easing appreciation pressure on the dollar in the near term and lending the yuan a broadly steady to slightly firmer bias, market participants said. The…
On Thursday, China's yuan reached a 3-1/2-year high against the US dollar, driven by easing US inflation concerns and a dimming prospect of an immediate Federal Reserve rate increase. The US consumer price index remained in line with expectations, reducing pressure on the dollar and lending a steady to slightly stronger bias to the yuan. As of 0251 GMT, the spot yuan opened at 6.7455 per dollar and traded as low as 6.7441, marking an 18 pip increase from the previous trading session.
Analysts from DBS noted that two consecutive muted inflation prints should dispel worries of broadening price pressures beyond energy. Additionally, a cooling labor market removed the case for near-term Fed tightening. The greenback's upside was also restrained by the worst US budget deficit since March 2021.
Before the market opened, the People's Bank of China set the midpoint rate at 6.7888 per dollar, a figure 418 pips lower than a Reuters estimate. The spot yuan is permitted to trade within a 2% range of the fixed midpoint each day. While the central bank has been gradually strengthening its daily yuan guidance, it has remained weaker than market expectations, indicating an intention to moderate the pace of appreciation.
UBS analysts suggested that seasonal factors may come into play as September approaches, with typically strong autumn export flows potentially providing support to the offshore yuan. However, the extent of any such appreciation would likely depend on the People's Bank of China's midpoint fixing strategy. As of this month, the yuan is up 0.6% against the dollar and 3.7% for the year.
The offshore yuan closed at 6.745 per dollar, a 0.01% gain in Asian trade. The dollar index, which gauges the greenback's value against a basket of currencies including the yen and the euro, remained steady at 100.
On Wednesday, the People's Bank of China declared it would conduct overnight reverse repos of up to 600 billion yuan ($88.98 billion) per day on August 14 and August 17-19. The central bank employs this short-term liquidity tool to fine-tune cash conditions in China's banking system.
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