SHANGHAI: China’s yuan slipped on Tuesday against the US dollar, as the central bank set a weaker daily official guidance rate, while traders awaited testimony from Federal Reserve Chair Jerome Powell for clues on the trajectory of US interest rates.

Despite the dollar index hovering near a multi-week low, the People’s Bank of China (PBOC) set a weaker fix after strengthening it for the past three sessions.

Traders will pay close attention to comments by Fed’s Powell when he testifies before Congress on Tuesday and Wednesday.

“If Powell hints that the Fed is closer to an interest rate cut in September, it could send the dollar index below 104.75, a critical support level,” said Philip Wee, senior FX strategist at DBS.

China’s yuan holds steady as PBOC plans to start new liquidity operations

The dollar index is at 105.

Prior to the market opening, the PBOC set the midpoint rate , around which the yuan is allowed to trade in a 2% band, at 7.1310 per dollar, 1,366 pips firmer than a Reuters’ estimate.

As of 0301 GMT, the spot yuan opened at 7.2683 per dollar and was last trading at 7.2726, 28 pips weaker than the overnight session’s close.

The spot yuan is only 10 pips away from the lower bound of daily trading limit.

The yuan has weakened 2.3% so far this year, and has been under pressure since early 2023 as domestic woes around a moribund property sector, anaemic consumption and falling yields drive capital flows out of yuan, while foreign investors stay away from its struggling stock market.

Citi traders, however, see further upside in the offshore yuan, as long-dated bond yields edged higher after the PBOC announced temporary liquidity operations on Monday.

Several analysts believed that the new tool could also help relieve some pressure on the yuan as the bank could better manage liquidity and short-term interest rates.

The offshore yuan traded at 7.292 yuan per dollar, down about 0.08% in Asian trade.