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SHANGHAI: China’s yuan weakened to five-month lows on Monday against the dollar, which was propped up by safe-haven flows and growing views the U.S. Federal Reserve may not in any hurry to cut interest rates.

The yuan was trading at 7.2432 per dollar at 0357 GMT, the lowest level since mid-November 2023 and slightly weaker than the previous close, despite the central bank’s daily benchmark fixings and support from state-owned banks.

The currency is down 2% this year, pressured by its relatively low yields versus other currencies and outflows of foreign investment from an anemic stock market.

Prior to the market open, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1043 per U.S. dollar, firmer than the previous fix 7.1046.

In the spot market, the onshore yuan opened at 7.2394 per dollar and was changing hands at 7.2432 at midday, 42 pips weaker than the previous late session close.

China’s yuan firms on soft dollar, PBOC support

The dollar’s trade-weighted index was above 106, but off five-month highs it struck last week after comments from Fed officials, a run of hotter-than-expected inflation data and Middle East tensions forced a paring back of rate cut expectations.

“With the broader USD strengthening 5% year-to-date and the USDCNY largely unchanged, we think the PBOC may want to let off some depreciation pressure by fixing the USDCNY slightly higher,” Goldman Sachs said in a note.

The Wall Street bank revised its yuan forecast to 7.20 per dollar for the next 12 months from 7.05 previously but noted it did not expect the PBOC would let the currency weaken beyond last September’s trough of 7.34.

China left benchmark lending rates unchanged at a monthly fixing on Monday, in line with market expectations, after encouraging first-quarter economic data removed the urgency to release monetary stimulus to aid the economy immediately.

The global dollar index fell to 106.071 from the previous close of 106.154. The offshore yuan was trading at 7.2516 per dollar.

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