Onshore yuan rebounds after three days of declines, shaking off a weaker fixing

The onshore Chinese yuan rebounded against the US dollar on Wednesday after three days of declines, while the offshore yuan was on track to extend its losing streak to a fifth session.

The recovery in the spot rate came despite the People’s Bank of China lowering the currency’s reference rate for a third straight day - the longest run of consecutive cuts this year.

The onshore yuan was up 0.06 per cent or 38 basis points trading at 6.8802 per US dollar as of 5pm. Before Wednesday, it had fallen against the US currency for three days in a row, down a combined 5 per cent.

However, the offshore yuan reversed earlier gains and turned lower in the afternoon, down 0.04 per cent or 26 basis points to 6.8662 per US dollar. It was poised to drop for a fifth day.

Earlier in the day, the People’s Bank of China cut the yuan’s mid-point rate to 6.883 per US dollar, down 0.06 per cent from the previous day’s rate of 6.879. Wednesday marked the third straight day the central bank had elected to weaken the yuan fixing, the longest run of reductions since December 29.

The ICE US Dollar Index, a measure of the dollar’s strength against six other major currencies, erased morning losses and rose to 101.56 as of 5pm. The index closed at 101.41 on Tuesday night, the highest level in more than five weeks.

On Tuesday, Philadelphia Federal Reserve president Patrick Harker suggested in a public speech he would support a March interest rate increase as long as the US economy shows signs of growth.

A number of other Fed officials were scheduled to speak this week, including Fed Board Governor Jerome Powell.

“There has been a strong focus on the comments from Fed members, noticeably raising the likelihood of a March Fed hike,” said Jingyi Pan, a strategist for IG Group.

“Although this had not translated to overwhelming expectations of an imminent Fed hike by the market, the US dollar had certainly gained strength on the first day back from the President’s Day holiday.”

The US currency strengthened against the euro Wednesday afternoon. The euro was at US$1.0509 as of 5pm, compared with 1.0536 late Tuesday.

The British pound bought US$1.2476, compared with US$1.2473 late Tuesday.

Against the Japanese yen, the US dollar pulled back after recent gains. It was at ¥113.26, down 0.4 per cent from ¥113.68 in the prior session.