China’s yuan strengthens to weekly high after Yellen’s dovish speech
The yuan strengthened to a weekly high on Wednesday morning, as the US dollar dropped against major currencies following Federal Reserve chair Janet Yellen’s dovish speech hinting at a slow pace of interest rate hike.
The People’s Bank of China set the yuan mid price at the strongest level in five days, at 6.4841 to the US dollar, 0.34 per cent higher than the previous day.
The onshore yuan in Shanghai once jumped to 6.4846, the strongest level since March 22. It was last trading at 6.4849 – 0.33 per cent, or 214 basis points, stronger. In Hong Kong, the offshore yuan extended a three-day rally on Wednesday to 6.4893, 0.04 per cent, or 25 basis points, stronger.
Euro and yen appreciated against the US dollar. The euro rose 5 basis points, or 0.04 per cent, higher to US$1.1294. The yen surged to its strongest level since March 24, at 112.44 per dollar.
“Yellen’s speech was the major driver … it is more dovish than even her post-FOMC (Federal Open Market Committee) press conference in March .... and we’ve seen a broad sell-off on the US dollar on the back of this aggressively dovish forward guidance as traders scaled back their rate hike projections for 2016,” said Stephen Innes, senior trader at Oanda Asia-Pacific.
“I would expect to see further US dollar weakness in days to come after the Fed all but left the door open to a weaker US dollar,” Innes said in a note.
In the speech late night Tuesday, Yellen warned that economic slowdown in China and falling oil prices are threats to the global economy. These two factors are the biggest obstacles for the US to return to interest rate normalisation, Innes said.