Chinese Yuan Declines To Five-Month Low, Keeping The Dollar Strong

(CTN News) – Against the dollar, the Chinese yuan fell to five-month lows on Monday, supported by safe-haven flows and the possibility that the Fed may not be in a hurry to reduce interest rates.

As of 0357 GMT, the Chinese yuan was trading at 7.2432 per dollar, the lowest level since mid-November 2023 and slightly weaker than the previous close, despite daily benchmark adjustments by the central bank and support from state-owned banks.

Compared to other currencies, the currency is down 2% this year due to low yields and outflows of foreign investment from an anemic stock market.

The People’s Bank of China (PBOC) has set the midpoint rate for the Chinese yuan for trading within a 2% band at 7.1043 per U.S. dollar, an increase over the previous fix of 7.1046.

The onshore Chinese yuan opened at 7.2394 per dollar and was trading at 7.2432 at midday, 42 pip weaker than the previous late session close.

Dollar trade-weighted index was above 106, but down from five-month highs last week following Fed comments, hotter-than-expected inflation data and Middle East tensions.

Considering that the USD has strengthened 5% year-to-date and the USDCNY has remained largely unchanged, Goldman Sachs believes the Chinese central bank may want to relieve some of the depreciation pressure by fixing the USDCNY slightly higher.

In its revised forecast for the next year, the Wall Street bank revised its Chinese yuan forecast to 7.20 per dollar from 7.05, but the bank noted that it did not expect the PBOC to allow the currency to fall much further than last September’s trough of 7.34.

A monthly adjustment of China’s benchmark lending rates was held last Monday, in line with market expectations, as encouraging first-quarter economic data reduced the urgency to release immediate monetary stimulus.

It fell from 106.154 to 106.071 from its previous close of 106.154. There was a trade of 7.2516 offshore Chinese yuan for every dollar.

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