SHANGHAI: China’s yuan eased slightly against the dollar in early trade on Thursday, reflecting broad strength of the US dollar in global markets after the Federal Reserve’s outsized interest rate reduction overnight.

Bounces in the dollar come after the US central bank kicked off its monetary easing cycle with a larger-than-usual half-percentage-point reduction that Chair Jerome Powell said was meant to show policymakers’ commitment to sustaining a low unemployment rate now that inflation has eased.

The onshore yuan was 0.42% lower at 7.1075 to the dollar by 0145 GMT, compared with the previous close of 7.0780. 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 7.0983 per dollar, and 59 pips weaker than a Reuters’ estimate.

“The yuan should continue to lag in recovery versus the rest of its peers because of China’s economic fragility and the risk that a Trump victory might spur greater yuan volatility because of his tariff threats on China,” Maybank analysts said in a note.

China’s yuan steady before key Fed meeting

“Yuan should remain on the backfoot versus most other developed market (DM) peers in the medium term and another 5% fall in the trade-weighted index (TWI) from here into 2025 could happen.”

A string of August economic data, including credit lending and activity indicators, surprised to the downside. Faltering Chinese economic activity has prompted global brokerages to scale back their 2024 China growth forecasts to below the government’s official target of about 5%.