Updated March 7th, 2024 at 09:13 IST

Yuan remains stable as Dollar weakens, persistent pressure lingers

Dollar index eased overnight & hovered close to one-month low as investors focused on expectations of future rate cuts despite some surprises in inflation data.

Reported by: Business Desk
Yuan | Image:Pexels Photo
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Yuan remains stable: China's yuan remained stable against the US dollar on Thursday, as the dollar weakened following remarks from the US Federal Reserve Chair indicating potential rate cuts.

The dollar index eased overnight and hovered close to a one-month low as investors focused on expectations of future rate cuts despite some surprises in inflation data.

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Federal Reserve Chair Jerome Powell, in his prepared remarks to the House panel, suggested that rate reductions would likely be necessary later this year, contingent upon the economy's performance and inflation trends.

Despite these developments, pressure persists on the yuan as expectations of easing monetary policies drive yields on China's long-term bonds to historic lows.

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With the Fed set for rate cuts, China may have more flexibility for monetary easing, according to market observers.

The People's Bank of China (PBOC) Governor Pan Gongsheng highlighted the potential for further cuts in banks' reserve requirements during a press conference on Wednesday.

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A combination of property market challenges, deflation concerns, and mounting local government debts has intensified pressure on Chinese policymakers to implement additional stimulus measures.

China's government bond yields declined across the board, with the 10-year yield dropping to its lowest level since April 2002.

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Analysts anticipate that continued easing measures could lead to a gradual depreciation of the yuan, although they expect the currency's decline to be moderated by stable exchange rate fixings and reports of state banks selling dollars.

Ahead of market opening, the People's Bank of China set the midpoint rate, around which the yuan is permitted to trade, at its strongest level in two months.

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The spot yuan opened slightly weaker against the dollar and traded marginally lower than the previous session's close.

The global dollar index edged lower, while the offshore yuan traded slightly weaker compared to its onshore counterpart.

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(With Reuters Inputs)

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Published March 7th, 2024 at 09:13 IST