China’s yuan eases from three-month high as COVID curbs fade
Last updated on: 12 December,2022 12:41 pm
China’s yuan eases from three-month high as COVID curbs fade
SHANGHAI (REUTERS) - China’s yuan eased from a near three-month high against the dollar on Monday, pressured by broad greenback strength and investor worries about COVID’s surge in the world’s second-largest economy as restrictions are progressively lifted.
Currency traders said optimism about a recent relaxation of China’s COVID curbs has gradually faded, as some market participants started to worry about the economic impact of the virus itself, not just lockdowns, with infections rising in major cities.
“The pandemic seems to be starting here finally,” said a trader at a foreign bank. “The overall direction is on the right track - there won’t be any lockdown or so but I’m worried there might be some setback if such easing doesn’t work.”
Economists at Commerzbank said China’s daily COVID case load has started to show a downtrend in recent days, but acknowledged the actual infection rate could be higher than what official data shows.
“Frequent testing is no longer required in many circumstances, so cases will likely be undetected, making it difficult to track the actual situation on the ground,” they said in a note.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.9565 per US dollar, the strongest fixing since Sept. 21, and 23 pips firmer than the previous fix of 6.9588.
In the spot market, the onshore yuan opened at 6.9750 per dollar and was changing hands at 6.9797 at midday, 199 pips weaker than the previous late session close.
The spot price touched a near three-month high of 6.93 per dollar on Friday.
Some currency traders said a firmer dollar has also added downside pressure on the yuan on Monday as markets shifted their attention to Federal Reserve policy meeting later this week.
The US central bank is widely expected to raise interest rates by 50 basis points, though focus would be on the bank’s updated economic projections and Fed Chair Jerome Powell’s press conference.
“After four consecutive 75bp hikes, we expect the FOMC to slow to a 50bp increase (this) week,” economists at Barclays said in a note.
“This should be accompanied by hawkish 2023 dots, signaling that the hiking cycle has a ways to go.”
US monetary policy tightening is likely to continue underpinning the dollar and pressure other major currencies.
By midday, the global dollar index rose to 105.131 from the previous close of 104.81, while the offshore yuan was trading at 6.9806 per dollar.