China’s yuan recovers some ground in pre-holiday trade after one-day plunge

SHANGHAI (Reuters) – The Chinese yuan regained some ground on Friday after its biggest one-day weakness in more than seven months, although trading eased as the Lunar New Year holiday approached.

After a sharp decline on Thursday, the People’s Bank of China set the daily midpoint of the yuan fixing at 6.3746 to the dollar before the market opened, its weakest level since January 5 after the sharp drop on Thursday.

The spot yuan opened at 6.3600 against the dollar and was trading at 6.3560 around midday, 130 pips stronger than Thursday’s late session close, when the yuan closed 484 pips weaker.

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A close at that level would mark the first monthly weakness of the yuan since July last year, although only 10 points.

The offshore yuan settled to 6.3595 per dollar from Thursday’s close of 6.3680.

However, traders and analysts expect the yuan to face increasing pressure as the monetary policy paths of the United States and China increasingly diverge. While US Federal Reserve fund futures now set five rate hikes this year, authorities at the People’s Bank of China (PBOC) have indicated that more easing is on the way.

“The People’s Bank of China (PBOC) has sounded extraordinarily dovish recently… We now expect a 50 basis point cut (the reserve requirement ratio) in the first quarter – in addition to our current call for a 10bp rate cut (Medium Lending Facility) term) in the second quarter – to reflect the “most concessional position of the People’s Bank of China”, economists at Standard Chartered said in a note.

While rising US yields pushed the dollar to its highest in nearly 19 months, the yuan’s decline this month was contained by strong seasonal corporate demand for the yuan ahead of China’s Lunar New Year holiday, which begins on Monday.

The Global Dollar Index (.DXY) fell to 97.142 from the previous close at 97.255, but was headed for its best week in seven months.

Yuan market at 4:08 am GMT:

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Main indexes:

* The difference in the exchange rate of the dollar / yuan. A negative number indicates that the spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall 2 percent over the official midpoint rate it sets each morning.

CNH overseas market

* In addition to marine sites on land

** The figure reflects a divergence from the official midpoint of the People’s Bank of China (PBOC), where non-deliverable futures contracts are settled against the midpoint. .

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(Reporting by Andrew Galbraith and Rong Ma

Our Standards: Thomson Reuters Trust Principles.

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