The dollar firmed as U.S. consumer prices accelerated in January as Americans continued to be burdened by higher costs for rental housing and food, suggesting that the Federal Reserve was far from pausing its interest rate hiking campaign. "The stubbornly high U.S. inflation reignited fears of Fed's tightening and EM Asian currencies came under pressure," said Ken Cheung, chief Asian FX strategist at Mizuho Bank. "Considering the People's Bank of China's (PBOC) relatively neutral monetary stance, the CNY may show resilience to the Fed's tightening and potential USD rally."
Prior to the market opening, the PBOC set the midpoint rate at 6.8183 per dollar, 47 pips weaker than the previous fix of 6.8136, the weakest guidance since Jan. 9.
In the spot market, the onshore yuan opened at 6.8237 per dollar and slipped to a low of 6.8448 at one point, the weakest level since Jan. 6. By midday, it was changing hands at 6.8419, 110 pips softer than the previous late session close. Currency traders said higher Treasury yields and the PBOC's heavy liquidity injections earlier in the session widened the interest rate gap between China and the United States and pressured the local currency. The widening yield differential also reflected in the forwards market, with one-year swap to -1,760 points, the lowest level since Jan. 9. Earlier in the day, the PBOC stepped up liquidity injections by offering 499 billion yuan ($73.11 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.75% from the previous operation, as expected. With 300 billion yuan worth of MLF loans set to expire this month, the operation resulted in a net 199 billion yuan of fresh fund offerings into the banking system. Markets believe the PBOC is keen to maintain sufficient liquidity to support an economic recovery after Beijing exited from its strict zero-COVID strategy in December. By midday, the global dollar index rose to 103.394 from the previous close of 103.233, while the offshore yuan was trading at 6.8521 per dollar.
The one-year forward value for the offshore yuan traded at 6.6834 per dollar, indicating a roughly 2.52% appreciation within 12 months. The yuan market at 0352 GMT:
ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.8183 6.8136 -0.07% Spot yuan 6.8419 6.8309 -0.16% Divergence from 0.35%
midpoint*
Spot change YTD 0.85%
Spot change since 2005 20.97%
revaluation
Key indexes: Item Current Previous Change
Dollar index 103.394 103.233 0.2
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People's Bank of China (PBOC) allows the exchange rate to
rise or fall 2% from official midpoint rate it sets each
morning.
OFFSHORE CNH MARKET
Instrument Current Difference
from onshore
Offshore spot yuan 6.8521 -0.15%
*
Offshore 6.687 1.96%
non-deliverable
forwards
**
*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 Winni Zhou and Brenda Goh; Editing by Kim
Coghill)
