Depreciation of the yuan: The yuan weakened against the dollar on Tuesday after the People’s Bank of China (PBOC) set its lowest average interest rate in nearly nine months. Traders are also awaiting key data on US inflation and economic reports from China due later in the week.
The People’s Bank of China set the mid-term exchange rate at 7.1479 per dollar, its lowest level since November 2023. This rate was 281 pips stronger than a Reuters estimate.
At the start of trading, the yuan was at 7.1780 per dollar and was last seen at 7.1794 at 0316 GMT, down 50 pips from the previous close and 0.44 percent weaker than the mid-range rate.
Despite a 0.6 percent gain against the dollar this month, supported by a rising yen and the liquidation of short positions following an unexpected rate hike by the Bank of Japan, the yuan remains 1.1 percent weaker so far this year. This decline is attributed to ongoing domestic challenges, including a struggling property sector, weak consumption and volatile stock markets.
Market attention is focused on upcoming US economic data, particularly the July consumer price index (CPI), which could influence the Federal Reserve’s policy decisions and in turn affect the yuan-dollar exchange rate. Kristina Hooper, chief global market strategist at Invesco, noted: “There are concerns that the CPI data could impact the Fed’s expected rate cut in September, but recent data suggest a continued disinflationary trend, including the July jobs report.”
China is also set to release key economic data on Thursday, including retail sales and industrial production.
The yen has stabilized after significant fluctuations last week, and movements in the Chinese and Japanese currencies often show a strong correlation during market volatility.
Japan’s parliament is scheduled to hold a special session on Aug. 23 to discuss the central bank’s recent interest rate hike, government sources said. China’s sovereign bond yields fell on Tuesday after the recent increases, adding complexity to the People’s Bank of China’s efforts to stabilize the weakened yuan.
(With contributions from Reuters)
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