SHANGHAI: China’s yuan weakened to a fresh seven-month low against a broadly stronger dollar on Wednesday, with a weaker central bank guidance also dragging on the currency and putting it on course for its sixth straight monthly decline in June.
By 03:10 GMT, the yuan was 0.04% lower at 7.2659 to the dollar after trading in a range of 7.2620 to 7.2663.
The yuan has stayed within a whisker of the weak end of its daily official trading band over the past week as capital outflows into the higher-yielding dollar and speculation the central bank is allowing it to depreciate weigh on sentiment.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1248 per dollar, its weakest level since November and 1,450 pips firmer than a Reuters’ estimate.
Based on Wednesday’s official guidance, the yuan is allowed to drop as far as 7.2673.
“(The) PBOC fixed the USDCNY (dollar yuan pair) reference rate higher for the sixth consecutive session at 7.1248 vs. previous 7.1225, reinforcing a message that PBOC is creating headroom for USDCNY to rise gradually,” said Maybank analysts in a note.
The spot yuan opened at 7.2620 per dollar and was last trading 31 pips lower than the previous late session close and 1.98% weaker than the midpoint.
China’s yuan extends 7-month lows
The US dollar strengthened overnight, bolstered by hawkish comments from Federal Reserve officials as well as data showing a stable US housing market, both suggesting that the central bank will not be in a rush to kickstart its rate-cutting cycle.
Traders are eagerly awaiting Friday’s release of the US personal consumption expenditures (PCE) price index - the Fed’s preferred measure of inflation, with economists polled by Reuters expecting the annual growth to ease to 2.6% in May.
The yuan is down 0.3% against the dollar this month, and 2.3% weaker this year.
It has been under pressure since early 2023 as domestic woes around a depressed property sector, anaemic consumption and falling yields drive capital flows out of yuan, and foreign investors stay away from its struggling stock market.
The offshore yuan traded at 7.2909 yuan per dollar, down about 0.01% in Asian trade.
The dollar’s six-currency index was 0.009% lower at 105.66.