China's yuan gets stronger after dollar slumps overnight
SHANGHAI: China’s yuan hit its firmest level in 3-1/2 years on Thursday after the dollar slumped overnight, as the US’ move to prop up long-dated bonds failed to ease concerns over the country’s spiraling debt. But the yuan’s strength was capped by the People’s Bank of China’s move on Thursday to slow the pace of appreciation by using the guidance rate. The onshore yuan touched 6.7203 per dollar…
SHANGHAI: China’s yuan reached its strongest level in nearly four years on Thursday, following a sharp decline in the dollar overnight. The US Federal Reserve’s effort to bolster long-dated bonds fell short in alleviating worries over China’s mounting debt. However, the People’s Bank of China (PBOC) limited the yuan’s appreciation by adjusting its guidance rate. The onshore yuan opened at 6.7203 per dollar, marking the highest level since February 2023.
Prior to market opening, the PBOC announced its yuan reference rate at 6.7808 per dollar, which was 612 pips below a Reuters estimate, marking the largest deviation in that direction since February. The PBOC’s guidance came after the dollar fell by 0.8% against major currencies overnight, hitting its lowest level in 2-1/2 months. The dollar’s weakness was partly due to a drop in US yields following the Treasury’s announcement of support measures for long-duration bonds.
Despite the dollar’s decline, concerns persisted about the US fiscal health, as the nation’s total debt surpassed $40 trillion for the first time. The Treasury’s decision to double long-bond buybacks aimed at maintaining market liquidity and expressing support, according to Guosheng Securities. However, the move did not address the structural pressure caused by the sustained rise in US fiscal deficit and the influx of long-term bonds.
Nanhua Futures attributed Thursday’s yuan strength to a weakening dollar, urging traders to keep a close eye on US inflation and employment data for clues on the future direction of US monetary policy.
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