Chinese yuan softens to near-year low after PBOC sets midpoint 351 basis points lower
Traders say currency will continue to weaken amid worries of trade war between China and the US
The People’s Bank of China set the daily midpoint of the yuan 0.54 per cent lower on Wednesday, or 351 basis points below its previous fix, signalling further downward pressure on the currency after it ended at a five-month low on Tuesday.
Traders believe the currency will continue to weaken amid worries of a growing trade war between China and the United States. The strengthening of the US dollar, which rose to a 11-month high against other major currencies, particularly the euro, also added pressure to weaken the yuan.
The offshore yuan traded at 6.4870 per US dollar early on Wednesday, down 0.2 per cent from Tuesday, and a fresh five-month low before bouncing back to 6.4806 in the evening. The currency is now within a hair of this year’s low of 6.5453, recorded on January 10.
The currency has now fallen for three days, having closed at 6.4743 against the US dollar on Tuesday, a drop of 0.56 per cent from Monday.
The weakening of the yuan came after the PBOC set Wednesday’s daily midpoint rate at 6.4586 yuan per US dollar, weaker by 351 basis points from Tuesday’s midpoint setting of 6.4235. The yuan is permitted to rise or fall by up to 2 per cent from the midpoint on each trading day.
“The weakening of the mid price set by the PBOC shows the central bank also wants to see the yuan fall with other currencies. The central bank has to do so as the euro dropped by 0.6 per cent against the US dollar, while the US dollar index rose by 0.5 per cent overnight. The yuan is now linked to a basket of currencies and its trading level will be affected,” said Jasper Lo, chief of investment strategies at Eddid Securities and Futures.