SHANGHAI: China’s yuan rose to a three-week high against the dollar on Monday, underpinned by contrasting data in the world’s top two economies and Beijing’s repeated pledge to keep the currency stable.
A weak US retail sales report revived market bets of two Federal Reserve rate cuts this year, while solid new bank loans in China suggested its economic recovery was gaining momentum.
All of that as well as some easing in worries of a full-blown global trade war underpinned the yuan, which had slipped to a three-week trough last week. Still, uncertainty remained around Sino-US tariffs, limiting the upside for the yuan.
“A relaxed stance on the yuan could invite short positions, particularly” as markets still expect higher tariffs on China, said Xinquan Chen, economist at Goldman Sachs.
“Given the uncertainty around the future path of US-China trade tensions, the People’s Bank of China (PBOC) may want to save some options in reserve and wait for more clarity regarding potential incoming tariffs.”
PBOC Governor Pan Gongsheng said on Sunday a stable yuan currency has been key to global financial and economic stability and Beijing will continue to let the market play a decisive role in deciding the exchange rate.
The onshore yuan rose to a high of 7.2424 per dollar in morning deals, the strongest level since January 27, before trading at 7.2478 as of 0312 GMT.
Its offshore counterpart traded at 7.2465 per dollar.
China’s yuan strengthens as central bank pledges to keep exchange rate stable
Prior to the market opening, the PBOC set the midpoint rate , around which the yuan is allowed to trade in a 2% band, at 7.1702 per dollar, and 915 pips firmer than a Reuters’ estimate of 7.2617.
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.
“The PBOC remains determined on its stance to guard against yuan overshoot … and we expect the sticky USD/CNY fixing below 7.20 to continue into National People’s Congress (NPC) in early March,” analysts at Barclays said in a note.
Traders said central bank’s recent efforts to shore up a patchy economic recovery reinforced expectations for more stimulus in coming months as US tariffs threaten to pile more pressure on the economy.
In the broader currency markets, the US dollar was on the back foot as easing concerns of a global tariff war undermined a safety-bid for the greenback.
The recent weaker-than-expected US economic data also added to the dollar’s headwinds as they reignited bets for more Federal Reserve rate cuts this year.
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