Updated February 26th, 2024 at 10:11 IST

Yuan weakens prior to US inflation, Chinese manufacturing data

Monday's midpoint was 918 pips stronger than the Reuters estimate of 7.1998, indicating the PBOC's commitment to foreign exchange stability.

Reported by: Business Desk
Chinese yuan | Image:AP Photo
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Chinese yuan falls: The Chinese yuan witnessed slight decline against the dollar on Monday, remaining close to a crucial threshold, as investors awaited several key US economic indicators that could impact the likelihood of a Federal Reserve rate adjustment.

Market attention focused on the upcoming release of the US core personal consumption expenditures price index, which serves as the Federal Reserve's preferred gauge of inflation. 

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Traders are waiting for insights into the future direction of monetary policy in the world's largest economy.

The People's Bank of China (PBOC) set the midpoint rate, which guides yuan trading within a 2 per cent band, at 7.1080 per dollar before market opening. The figure was 16 pips weaker than the previous fix of 7.1064. 

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The central bank's consistent practice of setting the official guidance at levels stronger than market expectations is perceived as an effort to maintain currency stability.

Monday's midpoint was 918 pips stronger than the Reuters estimate of 7.1998, indicating the PBOC's commitment to foreign exchange stability. 

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Paul Mackel, HSBC's global head of FX research, noted the PBOC's prioritisation of FX stability, evident in the steady USD/CNY fixing pattern observed since November of the previous year.

In the spot market, the onshore yuan opened at 7.1949 per dollar and was traded at 7.1980 by midday, marking a 27-pip decline from the previous late session close. The spot rate hovered near the psychologically major 7.2 per dollar mark.

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Li Liuyang, FX analyst at China International Capital Corporation (CICC), highlighted the importance of monitoring changes in market risk appetite, particularly as the Shanghai Composite index rebounded above 3,000 points. 

Recent volatility in mainland Chinese shares has influenced market sentiment, though the benchmark Shanghai Composite index has recovered all its earlier losses with support from government measures aimed at stimulating economic growth and bolstering investor confidence.

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Traders are also anticipating the release of February manufacturing activity data later in the week, which will provide insights into the overall health of the Chinese economy.

Meanwhile, the global dollar index rose to 104.007 from the previous close of 103.936, while the offshore yuan traded at 7.2067 per dollar by midday.

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(With Reuters Inputs)

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Published February 26th, 2024 at 10:11 IST