Yuan falls against dollar, further pressure expected

Yuan dips against dollar: The Chinese yuan saw a slight weakening against the dollar on Friday, concluding a turbulent week marked by efforts from the Chinese central bank to slow its decline against a robust dollar.

Traders, anticipating fresh US inflation data later in the day, foresee continued downward pressure on the yuan coupled with increased volatility.

At midday, the onshore spot yuan was trading at approximately 7.2270 per dollar, marginally weaker compared to the previous late session close.

In an effort to stabilise the currency, the People's Bank of China set the midpoint rate almost unchanged before the market opened. 

The fixing, at 7.095 per dollar, surpassed Reuters estimates by more than 1,300 pips.

Guosheng Securities attributed the recent weakness of the yuan primarily to the strength of the dollar. 

Since mid-March, the dollar index has seen a major rebound, rising by 3.2 per cent year-to-date.

Analysts at Guosheng believe that in the short term, the yuan will continue to face downward pressure as the central government follows the prevailing trend.

While acknowledging the potential negative impact of yuan depreciation on China's stock, bond, and commodities markets, the brokerage considers a major drop in the yuan unlikely, given the limited room for dollar strength and the central bank's ongoing intervention in the forex market.

Reflecting the authorities' influence, the onshore yuan trades more than 300 pips stronger than the offshore yuan, which is determined more by market forces.

Traders are eagerly awaiting the release of the US personal consumption expenditures price index later on Friday.

Economists polled by Reuters suggest that the Federal Reserve's preferred inflation gauge may have accelerated in February, potentially providing further support to the dollar.

(With Reuters Inputs)