Yuan shrugs off stronger fix to retreat against US dollar

In the spot yuan market in Shanghai, the US dollar bought 6.8896 yuan at 10.55 am, up 0.07pc from 6.885 late Friday

PUBLISHED : Monday, 22 May, 2017, 11:13am
UPDATED : Monday, 22 May, 2017, 11:13am

The yuan retreated on Monday against the US dollar, in both onshore and offshore markets, shrugging off a stronger fix by the People’s Bank of China.

In the spot yuan market in Shanghai, the US dollar bought 6.8896 yuan at 10.55 am, up 0.07 per cent from 6.885 late Friday.

Onshore traders are allowed to buy or sell the yuan within 2 per cent of its daily fixing level set by the People’s Bank of China (PBOC).

In Hong Kong, the offshore yuan also weakened, with the US currency trading at 6.8787 per yuan, compared with 6.8743 at the end of last week.

Earlier on Monday, the PBOC set the yuan’s mid-point rate at 6.8673, stronger by 113 basis points from the previous session.

The yuan has declined recently against the greenback, as investors remained doubtful about the growth outlook of the Chinese economy, while many also expect more US interest rate increases this year.

According to recent statistics from the BIS (Bank for International Settlements), the yuan’s real effective exchange rate has dropped 2.8 per cent so far this year, following an annual loss of 5.6 per cent last year.

Looking ahead, analysts expected the Chinese authorities to ease regulatory pressures to calm the market.

“Over the past few days, both the PBOC and the CBRC (China Banking Regulatory Commission) came out to ease the market sentiment. Last week the PBOC also injected 160 billion yuan into the interbank market and repo rates dropped accordingly, ” said Larry Hu, an analyst for Macquarie Capital.

“The next couple of months will remain as the window for regulation, until the growth deceleration threatens the 6.5 per cent target,” he added.

In other foreign exchange trading, the US dollar staged a broad rebound following recent losses sparked by the ongoing drama over alleged Russian links to President Donald Trump.

The ICE US Dollar Index, a gauge of the greenback’s strength versus six rivals, rose 0.2 per cent to 97.309.

Against the Japanese yen, the US currency jumped 0.2 per cent to ¥111.53.

The euro traded at US$1.1184, down 0.2 per cent from US$1.1206 last Friday. The British pound also retreated 0.3 per cent to US$1.2993 compared with US$1.3036 in the prior session.