China’s currency eases to seven-week low against the US dollar ahead of Janet Yellen’s policy speech
The yuan fell to its weakest level since mid January on Friday, at one point breaking the 6.9 threshold as the US dollar soared ahead of Federal Reserve Chairwomen Janet Yellen’s speech due later in the US day.
The onshore yuan in Shanghai was quoted at 6.898 against the US dollar at 4.30pm, easing 160 basis points or 0.2 per cent. At one point the yuan fell to 6.9065, reflecting the lowest level since January 13.
The offshore yuan in Hong Kong slid to 6.9035 per dollar, down 83 basis points or 0.3 per cent.
The People’s Bank of China set the yuan reference rate at a three-week low of 6.8896 against the US dollar on Friday morning, down 87 basis points or 0.1 per cent.
The USｄdollar index that tracks a basket of six currencies, DXY, stood firmly at its seven-week high, breaking above the 102 threshold.
The euro fell 0.1 per cent on Friday afternoon to US$1.0515, with the British pound eased 0.1 per cent to US$1.2251.
“Recent Fed speakers have made the March meeting more than ‘live’, in fact Fed funds futures indicate that a March rate rise has become the market’s base case in only a few days, with the implied probability now at 90 per cent,” said Michael Every, head of financial markets research for Asia-Pacific at Rabobank International.
Yellen’s comments will be closely scrutinised for indications whether an interest rate rise will come in March.
“If she’s hawkish, then March looks a done deal, and – depending on how hawkish the signals are for the rest of 2017 – perhaps the baseball caps will have to come off. However, if she talks back a rate hike and goes back to the standard prevarication, equities will [possible] rally, yields drop, and the US dollar sink,” Every said.
At the start of the year, the Chinese yuan strengthened against the dollar to 6.78 from almost 7, owing to intervention by China’s central bank. The recent weakness is the result of a strong dollar, as the yuan was actually stronger than rival currencies like sterling and the euro, Zhong Yue, analyst at FXTM said.
“The future trend of the yuan still depends on the pace of USｒinterest rate rises. If rates are raised in March, the yuan may pull back to approach 7 again,” Zhong said.