China’s yuan gains ground as US dollar index softens to six-week low
China’s yuan strengthened against the greenback on Wednesday, after a turbulent overnight session on Wall Street dragged stocks lower and weighed negatively on a global US dollar index.
US stock indexes posted their largest drop on Tuesday since the November election of US President Donald Trump with investors concerned about the ability of the new administration to implement its pro-business policy agenda.
Overnight, the dollar index slid below 100 for the first time since early February, extending a downtrend that began last week when the Federal Reserve disappointed some investors by signalling no pick-up in the pace of interest rate rises. The index was flat at 99.817 as of 12:40pm.
The offshore yuan in Hong Kong was stronger by 0.06 per cent, or 44 basis points, to 6.8679 against the greenback at 12:40pm, while the onshore yuan in Shanghai inched up 0.08 per cent, or 55 basis points, to 6.8819.
Stephen Innes, senior trader at OANDA, said the market had begun to question the ability of the Trump administration to pass tax and spending reforms amid doubts a new healthcare bill will receive the votes needed to pass through Congress on Thursday.
“A lot of our theories behind a weaker yuan was based on the US dollar story,” Innes said. “If the US dollar story starts to abate somewhat, there will be some appeal to the mainland market and it should support the yuan.”
The People’s Bank of China on Wednesday set the yuan daily fixing against the US dollar at 6.8889, 182 points stronger than its fix the previous day. The onshore exchange rate is allowed to fluctuate up to 2 per cent either side of the reference point daily.
Sterling weakened slightly to US$1.2475 while the euro weakened 0.12 per cent to 1.0798 per US dollar. The yen reversed earlier gains and traded flat, with the US dollar buying 111.7.
The market is also awaiting speeches by US Fed officials this week for their projections on the future movement of the dollar. Fed Chairwoman Janet Yellen will speak at a community development conference on Thursday.