SHANGHAI: China’s yuan weakened against the dollar on Friday, pulling back from a five-month high as investors awaited more clarity on the outlook for US interest rates while fresh diplomatic and trade tensions with Washington weighed on sentiment.
The yuan fell 0.28% to 6.8478 in spot trade around midday, even as the central bank set the midpoint at 6.8374, the highest level since Feb. 15.
The dollar was steady on Friday, near seven-week lows as nervousness over the banking system kept investors skittish.
New signs of strains between Beijing and Washington have also hampereconcernsappetite.
US lawmakers on Thursday questioned TikTok’s CEO about potential Chinese influence over the platform, the latest company to be in the cross-hairs of the Sino-US conflict.
That comes after China’s military on Thursday said it had driven away a US destroyer that entered waters around the Paracel Islands in the South China Sea.
Meanwhile, traders are still assessing what the Fed’s most recent commentary means for monetary policy and some analysts see a bearish bias for the greenback, which means the Chinese currency still has potential to gain.
China’s yuan firms to over one-month high, buoyed by dovish US Fed comment
The Fed on Wednesday raised interest rates by 25 basis points, as expected, but took a cautious stance on the outlook because of banking sector turmoil.
“The market is still worried about the US banking sector and had divergent views over Fed decisions,” said a trader at a foreign bank.
Goldman Sachs analysts expect the Fed to deliver 25 basis-point hikes in May and June, and for the US policy rate to peak at 5.25-5.5% this year.
China International Capital Corp (CICC) says the dollar will likely be curbed by worries about the risk of a banking crisis and that the yuan has potential to reach 6.80 against the greenback.
“We expect China’s yuan to stabilise and a weakening dollar will strengthen the yuan, but domestic ample liquidity will offset that advantage,” said Pang Xichun, research director at Nanjing RiskHunt Investment Management Co.
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