China’s yuan eased to a fresh seven-month low against the dollar on Tuesday, signaling its sixth consecutive monthly decline as the central bank, the People’s Bank of China (PBOC), continued to set weaker official fixings.
Despite the dollar’s overnight retreat, the yuan remained close to the lower end of its daily trading band, driven by capital outflows and speculation that the central bank might allow further depreciation.
Picture: Yuan sees a decline on the VT Markets app.
In morning trade, the spot yuan dropped to 7.2630, the lowest since November 2023, influenced by a weak fixing from the PBOC. The bank set the midpoint rate at 7.1225 per dollar, 1,362 pips firmer than expected, marking its weakest level since November.
This move hints that the PBOC may permit additional weakening of the yuan, contrary to the general strengthening of other currencies against the dollar overnight.
Picture: Dollar index currently trading at 105.133 on the VT Markets app.
The dollar index fell overnight to 105.44 from a high of 105.9 on Monday, as U.S. Treasury yields dropped ahead of the release of personal consumption expenditures (PCE) inflation data expected this Friday. This drop in the dollar index contrasts with the yuan’s continued decline, underscoring the unique pressures on the Chinese currency.
The yuan has weakened by 2.2% this year, reflecting ongoing domestic challenges such as a sluggish property sector and weak consumer spending.
These issues have contributed to capital outflows and deterred foreign investment in China’s stock market. The offshore yuan, traded outside mainland China, stood at 7.2839 as of 0246 GMT and could retest the 7.30 level amid upcoming U.S. political events.
Onshore, the yuan opened at 7.2605 per dollar, quickly weakening to 7.2629, the lowest level since November 15, 2023. The official guidance allows the yuan to weaken to as low as 7.2650.
In overnight cash settlement transactions, the yuan was quoted at 7.2618 per dollar, just 32 pips from the lower end of its trading band.
Also read: Weaker Chinese yuan (CNY) pressures base metals as high inventories weigh on copper
Investors will be closely monitoring this week’s economic data for further insights into the currency’s trajectory. Key indicators include the U.S. PCE inflation data, China’s May industrial profits due on Friday, and the June manufacturing survey set for release on Sunday.
These data points will provide a clearer picture of the economic environment and potential impacts on the yuan.
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