SHANGHAI: China’s yuan eased slightly against the dollar on Wednesday, as signs of tight liquidity conditions partially offset investor concerns over escalations in global trade tensions.
Cash conditions in onshore money markets remained on the tight side as month-end demand started to kick in, traders said, with the central bank draining money through open market operations on most days in February.
The People’s Bank of China (PBOC) has drained nearly 1.2 trillion yuan ($165.42 billion) on a net basis through reverse repos so far this month, according to Reuters calculations based on official data.
“The central bank’s reluctance to inject more liquidity through open market operations post-LNY (Lunar New Year) and pausing of purchasing short-tenor bonds are noteworthy,” Barclays analysts said in a note this week.
Yuan slips on renewed investor worries about Sino-US trade relations
“It signaled discomfort about the rapid fall in interest rates last December and a more urgent need to stem yuan weakness given the wide US-China rate differentials.”
As of 0256 GMT, the onshore yuan was 0.08% lower at 7.2585 per dollar, and its offshore counterpart traded at 7.2587.
Prior to market opening, the PBOC set the midpoint rate , around which the yuan is allowed to trade in a 2% band, at 7.1732 per dollar, and 794 pips firmer than a Reuters’ estimate of 7.2526.
The central bank has set its official guidance on the firmer side of market projections since mid-November, which analysts and traders see as a sign of unease over the yuan’s decline.
Currency traders said threats of worsening global trade relations continued to weigh on market sentiment after US President Donald Trump ordered a probe into potential new tariffs on copper imports to the United States.
Trade tensions were among the biggest drags on the yuan during Trump’s first term, when a series of tit-for-tat US-China tariff announcements drove the Chinese currency down more than 12% against the dollar between March 2018 and May 2020.
In global markets, the dollar sagged near an 11-week low against its major peers, under pressure from sliding short-term Treasury yields after a run of weak economic data.
Comments