HONG KONG: China’s yuan slightly firmed against the dollar on Thursday, as the greenback struggled for direction after the US Federal Reserve indicated it is getting closer to cutting interest rates.
Fed Chair Jerome Powell sent some dovish hints on rate policy when making comments during testimony to Congress this week, raising market hopes for a rate cut later this year.
By 0353 GMT, the yuan was 0.08% higher at 7.2705 to the dollar after trading in a range of 7.2689 to 7.2760.
Still, the currency hovered near an almost eight-month low made on Wednesday after sluggish Chinese inflation data.
Weak inflation calls for larger-scale policy support to be announced during the crucial third plenary session next week, analysts with DBS said.
More support for economy and the ailing housing sector should lift the yuan, they said.
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1339 per dollar, 1,391 pips firmer than a Reuters’ estimate.
The central bank has been gradually lowering its daily yuan official guidance, well within market projections, but with a bias suggesting it is allowing some depreciation, traders and analysts said.
The spot yuan opened at 7.2738 per dollar, and was last trading 54 pips firmer than the overnight close and 1.91% weaker than the midpoint.
Yuan slumps to near 8-month low
The yuan has weakened 2.3% so far this year. It 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, and foreign investors stay away from its struggling stock market.
On his second day of testimony on Wednesday, Powell said he was not ready to conclude that inflation is moving sustainably down to 2% though he has “some confidence of that.”
Market focus now shifts to the June US consumer price index (CPI) to be announced on Thursday to get clearer clues on rate cut roadmap.Based on Thursday’s official guidance, the yuan is allowed to drop as far as 7.2766.
The offshore yuan traded at 7.2856 yuan per dollar, up about 0.08% in Asian trade.
The dollar’s six-currency index was 0.038% lower at 104.93.