China's yuan
eased on
Friday
from a three-week high, as the U.S. dollar recovered ground against other major currencies on prospects for monetary loosening beyond the United States after dovish signals from central bankers in Europe and the UK.
The spot yuan opened at 6.7400 per dollar and was changing hands at 6.7440 at midday, 83 pips weaker than the previous late session close and 0.09% away from the midpoint.
The People's Bank of China set the midpoint rate at 6.7382 per U.S. dollar prior to market open, weaker than the previous fix at 6.713. The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day. The weakness in the yuan mirrored a broader decline among Asian currencies, as investors took a dovish cue from central bankers in Europe and the UK, said Christopher Wong, FX strategist at OCBC Bank.
Policy makers at the European Central Bank (ECB) and Bank of
England (BOE) said on Thursday inflationary pressures in their
economies have become more manageable.
"The decline in the USD is showing tentative signs of
slowing as it appears that the U.S. central bank is not the only
one calibrating its tightening pace, both ECB and BOE are
potentially doing so in due course," he said.
The global dollar index rose to 101.839 from the
previous close of 101.75.
The offshore yuan was trading 0.03% weaker than the
onshore spot at 6.746 per dollar.
While the reopening of China's economy following the removal of strict COVID-19 controls has improved sentiment, it is not necessarily positive for China’s balance of payments and the yuan, according to Sophie Altermatt, an economist at Julius Baer.
"We believe that headwinds come from a reversing goods trade balance due to a slowdown in external demand. While imports benefit from a pick-up in domestic demand," she said, adding that once Chinese people start traveling abroad again it could also increase the potential for capital outflows.
"These effects could offset capital inflows due to improved sentiment towards Chinese assets," Altermatt said in a research note.
The one-year forward value for the offshore yuan traded at 6.6105 per dollar, indicating a roughly 2.05% appreciation within 12 months. The currency market barely reacted to a China services sector survey showing activity in January expanded for the first time in five months due to higher spending and travel during the Lunar New Year after the removal of stringent COVID-19 curbs. The Caixin/S&P Global services purchasing managers' index (PMI) released on Friday rose to 52.9 in January from 48.0 in December.
"Although Friday's data is positive, it largely confirmed the official PMI data that was released earlier this week," said Alvin Tan, head of Asia currency strategy at RBC Capital Markets.
The yuan market at 3:24AM GMT:
ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.713 -0.37% 6.7382
Spot yuan -0.12%
6.744 6.7357
Divergence from
midpoint*
0.09%
Spot change YTD
2.31%
Spot change since 2005
revaluation 22.72%
OFFSHORE CNH MARKET
Instrument Current Difference
from onshore
Offshore spot yuan
* 6.746 -0.03%
Offshore
non-deliverable 1.85%
forwards 6.6157
**
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint. .
(Reporting by Georgina Lee; Editing by Simon Cameron-Moore)
