SHANGHAI — China’s yuan weakened to a
26-month low against a rising dollar on Wednesday, ahead of a
U.S. Federal Reserve decision on policy settings, while its
deviation from official guidance hit its widest since the early
COVID-19 outbreaks in 2020.
Depreciation pressure is mounting on the yuan with several
overseas central banks expected to aggressively raise interest
rates this week to tame high inflation. The Federal Reserve is
widely expected to deliver another 75-basis-point rate rise
later on Wednesday.
The Fed’s monetary tightening trajectory could affect its
peers’ decisions and major currencies. Its widening divergence
with the Chinese central bank, which has kept rates low, has
piled particular pressure on the yuan.
Prior to the market opening, the PBOC continued to set a
firmer-than-expected official midpoint fixing to slow
the yuan’s decline.
The guidance was set at 6.9536 per dollar, 68 pips weaker
than the previous fix of 6.9468, the softest since Aug. 12,
In the spot market, the onshore yuan rate opened
at 7.0278 per dollar and slumped to a low of 7.0460, the softest
level since July 6, 2020. By midday, it was changing hands at
7.0442, down 266 pips from the previous late session close.
Its offshore counterpart followed suit and weakened
past 7.05 per dollar for first time since July 2020. It traded
at 7.0502 around midday.
“As the gap between the spot and fix is widened, we
anticipate depreciation pressure could increase should the spot
reach the upper bound of the trading band,” analysts at Maybank
said in a note.
The gap between onshore yuan and the official midpoint stood
at 906 pips, the widest since Feb 2020.
The spot yuan rate is only allowed to trade in a narrow 2%
range around the daily midpoint, and Wednesday’s guidance kept
the range to 6.8145 to 7.0927.
Some currency traders said the yuan weakness may persist for
the time being, weighed down by the Fed’s hawkish rate hikes.
“Markets will closely watch the Fed remarks after the rate
decision for more clues on the future trajectory,” said a trader
at a foreign bank.
The yuan market at 0402 GMT:
Item Current Previous Change
PBOC midpoint 6.9536 6.9468 -0.10%
Spot yuan 7.0442 7.0176 -0.38%
Divergence from 1.30%
Spot change YTD -9.78%
Spot change since 2005 17.49%
Item Current Previous Change
Dollar index 110.234 110.215 0.0
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People’s Bank of China (PBOC) allows the exchange rate to
rise or fall 2 percent from official midpoint rate it sets each
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 7.0502 -0.09%
Offshore 6.932 0.31%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC’s official midpoint,
since non-deliverable forwards are settled against the midpoint.
(Reporting by Winni Zhou and Brenda Goh; Editing by Edmund