Yuan falls as dollar rises after Fed minutes indicate rate increase could come ‘fairly soon’

The Chinese yuan weakened in offshore markets on Thursday, as the US dollar advanced in Asian trading hours after minutes from the US Federal Reserve indicated a rate increase could come “fairly soon”.

The offshore yuan, which mainly trades in Hong Kong, was down 0.1 per cent to 6.8644 per US dollar as of 5pm, compared with 6.8573 late Wednesday.

The onshore yuan was almost flat in Shanghai, trading at 6.8774 per US dollar from 6.8778 in the prior session.

Earlier in the day, the People’s Bank of China set the yuan’s mid-point rate against the US dollar at 6.8695, stronger by 135 basis points from the previous day.

Domestic traders are allowed to buy or sell the yuan within 2 per cent of the daily reference rate.

In US dollar trading, the greenback firmed against most other major currencies on Thursday, after the minutes released Wednesday indicated “many” Federal Reserve officials expressed views on the January 31 to February 1 meeting that it would be appropriate to raise interest rates “fairly soon” if the economy continues to show strength.

“The minutes had nevertheless performed one purpose of confirming the fact that Fed members have been considering an upcoming hike,” said Jingyi Pan, a strategist for IG Group.

However, the market’s perception of the minutes had been relatively “dovish”, Pan said, as some Fed members also suggested the uncertainty surrounding the fiscal policy could put the Fed off course for an early hike.

Looking ahead, “the devil will likely lie with upcoming data”, including an update on the key jobs report at the start of March ahead of the next Fed policy meeting in March, she said.

On Thursday afternoon, the ICE US Dollar Index, which measures the US currency against six rival currencies, advanced 0.1 per cent to 101.29 from 101.22 late Wednesday.

The euro dipped to US$1.0557 from 1.0558, while the British pound rose to US$1.2475 from US$1.245.

Against the Japanese yen, the US currency was down 0.1 per cent to ¥113.2, compared with ¥113.31 in the previous session.