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SHANGHAI: China’s yuan edged up against the dollar on Thursday while sentiment continued to be hammered by the spread of COVID-19 across the country and worries over the virus’ impact on economic activity in the near term.

The slight strength in the yuan tracked dollar weakness after the Bank of Japan’s surprise tweak to its bond yield control earlier this week, currency traders said.

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.9713 per dollar, 63 pips or 0.1% weaker than the previous fix at 6.965.

In the spot market, the onshore yuan opened at 6.9700 per dollar and was changing hands at 6.9771 at midday, 39 pips firmer than the previous late session close.

Trading remained thin on Thursday as COVID sweeps through trading floors. Volume shrunk to $6.1 billion at midday, compared with a normal half-day volume of about $15 billion.

Cities in China began distributing free anti-fever drugs to the public, as COVID-19 spreads through the world’s most populous country largely unchecked for the first time after an abrupt shift in containment policies.

China’s yuan eases in thin trade as worries grow COVID impact on economy

Many economists and analysts said Beijing’s move to ease containment measures came in much earlier than they had expected and could put downside pressure on the economy in the near term.

“On the one hand, this suggests that China may emerge from the pandemic much sooner, with an increased likelihood of rebounding growth in 2Q23,” said Serena Zhou, senior China economist at Mizuho Securities.

“On the other hand, a disorderly reopening also risks higher inflationary pressure amid disruption to both commodity and labour supply.”

Zhou cut her growth forecast for the fourth quarter to 1.0% year-on-year from 4.0% previously.

This brought her full-year growth projection to 2.5% from 3.3% previously, much lower than the annual target of “around 5.5%” set by the government in March.

Separately, the government has said it is aiming for an improvement in growth in early 2023, state media on Wednesday quoted the cabinet as saying.

By midday, the global dollar index fell to 103.943 from the previous close of 104.162, while the offshore yuan was trading at 6.9807 per dollar.

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