Prior to market opening, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1032 per dollar, 4 pips stronger than the earlier fix of 7.1036 on February 9
China’s yuan dropped against the dollar on Monday as investors returned from the week-long Lunar New Year break and caught up with a strong U.S. dollar, but losses were limited by indications of encouraging holiday spending.
The latest U.S. data showed inflation remained sticky in the world’s biggest economy, pushing back market expectations for the start of rate cuts by the Fed to at least the middle of the year from March.
The trajectory of the U.S. monetary policy impacts the dollar and other major currencies, including the yuan, traders said.
Prior to market opening, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1032 per dollar, 4 pips stronger than the earlier fix of 7.1036 on February 9.
The central bank continued its months-long practice of setting the official guidance at levels firmer than market projections, broadly viewed as an effort to keep the currency steady.
Analysts at Barclays said in a note that by keeping the official guidance rate near 7.10 per dollar, it can be “interpreted as status quo and the range (for the spot yuan) between 7.10 and 7.25 should continue to hold.”
USD/CNY spot has been trading marginally below the 7.20 level since the start of the year, anchored by the fixing that has been steadying near 7.10, said Paul Mackel, global head of FX research at HSBC.
He added: However, much depends on whether there will be an improvement in onshore sentiment after the holiday period has ended. One way to capture this is how the domestic equity market performs in the near term.
