Yuan declines as US dollar gains on near-certain Fed interest rate rise

PUBLISHED : Tuesday, 07 March, 2017, 3:09pm
UPDATED : Tuesday, 07 March, 2017, 3:09pm

The Chinese yuan declined on Tuesday against the US dollar after the People’s Bank of China guided the currency lower, while the greenback crept up on the almost certain prospect of a rate rise in March.

Earlier in the day, the PBOC set the yuan’s mid-point rate at 6.895 per US dollar, weaker by 167 basis points than the previous fixing of 6.879 on Monday.

In mainland China, traders are allowed to buy or sell the yuan within 2 per cent of the daily official reference rate.

Spot yuan dropped in Shanghai from Monday afternoon’s 6.893 per dollar to 6.901 on Tuesday morning.

In the offshore market in Hong Kong, the yuan also edged down to 6.8956 per dollar as of 2.16pm, after the currency rebounded on Monday to 6.8916.

Meanwhile, the greenback edged up against a basket of six major peers to 101.6, after retreating to a one-week low of 101.2 on Monday.

The dollar’s gains came after Federal Reserve Chair Janet Yellen said on Friday that raising interest rates this month would be appropriate, if jobs and inflation data hold up.

In other foreign exchange trading, the yen declined slightly after Monday’s sharp rise, with the US dollar buying ¥113.9 early on Tuesday morning.

The Japanese currency on Monday climbed to ¥113.64 per US dollar from ¥114.04 late Friday, an increase mainly fuelled by investors who were seeking a safe-haven asset amid rising geopolitical tensions.

North Korea on Monday fired four ballistic missiles into waters off Japan’s east coast.

“Markets were rattled by news of North Korea missile launches over the weekend,” Marc Chandler, global head of currency strategy at BBH Markets wrote in a note. “Anxiety over European politics remains elevated, but it has eased by nearly any metric one chooses.”

The euro was at US$1.0589, down from US$1.063 on Monday. Sterling continued its losing streak, dropping to US$1.2239 from US$1.2267 in the prior session.