SHANGHAI: The yuan hit an 11-week low against the greenback on Tuesday as diplomatic tension ahead of an expected Taiwan visit by U.S. House of Representatives Speaker Nancy Pelosi pressured the Chinese currency.
The U.S. politician was set to arrive in Taipei later in the day, people briefed on the matter said, as the United States said it would not be intimidated by Chinese “sabre rattling” over a visit to a self-governing island that China regards as a renegade province.
Onshore yuan touched 6.7835 per U.S. dollar in morning trade, its lowest since May 16, before recouping some losses. Offshore yuan fell as far as 6.7945.
Yuan weakness comes even as the greenback eased overnight on signs U.S. economic activity was moderating, strengthening expectations for the Federal Reserve to slow its pace of monetary tightening.
Pelosi’s Taiwan visit “would certainly have a negative impact on market sentiment,” said hedge fund manager Yuan Yuwei at Water Wisdom Asset Management.
Yuan extends 5-month losing streak on downbeat PMIs, with Sino-relations in focus
But the biggest risk to the currency is China’s economic fragility amid tough COVID-19 containment policies, though dollar weakness could lend short-term support, he said.
Latest factory activity data showed China’s wobbly economy stumbled further at the start of the second half of the year with factories reducing output, a slump in the property sector deepening and job cuts widespread.
Fund manager Yuan also said increasing willingness from U.S.-sanctioned Russia to use the Chinese currency is a positive for its value.
Russian aluminium producer RUSAL on Friday said it had become the first company to issue yuan bonds in Russia.
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