On Monday, China’s yuan fell to a one-month low against the U.S. dollar, pressured by rising expectations of monetary policy easing and concerns over the Covid-19 pandemic in China.
According to traders, investors were also concerned about the rapid gains in the yuan’s value against major trading partners. The CFETS basket index has been hovering at all-time highs since last week, forcing the People’s Bank of China (PBOC) to set weaker-than-expected official fixings in recent sessions.
On Monday, the country’s central bank again set the midpoint rate weaker, at a one-month low of 6.3506 per dollar prior to market open, 200 pips or 0.3% softer than the previous fix of 6.3306.
Importantly, the lower-than-expected guidance rate dragged the spot price lower. On Monday, the onshore yuan opened on the weaker side of the psychologically important 6.35 per dollar for the first time since February 15. By midday, it was changing hands at 6.3519 per dollar, 119 pips weaker than the previous late session close.
Some expect it to cut key interest rates including the borrowing cost of the medium-term lending as soon as Tuesday.
Besides, a buoyant U.S. dollar ahead of the Federal Reserve’s policy meeting this week also affected the yuan.
The central bank is all but certain to begin hiking interest rates from their pandemic lows.
By midday, the global dollar index jumped to 99.255 from the previous close of 99.124. Meanwhile, the offshore yuan was trading at 6.3638 per dollar.
Yuan and Russia
The Russian Federation will use yuan from its foreign currency reserves according to Finance Minister Anton Siluanov. It decided to use the yuan after Western sanctions blocked Russia’s access to the U.S. dollar and euro in reserves. Western countries imposed sanctions on the country after it invaded Ukraine.