China’s yuan dips against dollar, downward pressure persists

SHANGHAI, March 29 (Reuters) – China’s yuan slightly weakened against the dollar on Friday as it neared the end of a volatile week in which the Chinese central bank attempted to slow the pace of the currency’s fall against a buoyant dollar.

Traders awaiting fresh US inflation data later in the day expect further downward pressure on the yuan, as well as rising volatility.

The onshore spot yuan CNY=CFXS was changing hands at around 7.2270 per dollar at midday, slightly weaker than the previous late session close.

Reflecting central bank efforts to stabilize the currency, the People’s Bank of China set the midpoint rate CNY=PBOC almost flat before market open. At 7,095 per dollar, the fixing is more than 1,300 pips stronger than Reuters estimates.

Guosheng Securities attributed the yuan’s recent weakness mainly to dollar’s strength. The dollar index =USD has rebounded sharply since mid-March and is up 3.2% so far this year.

“In the short term, the yuan still faces downward pressure” as the central government “follows the trend,” Guosheng analysts Xiong Yuan and Liu Xinyu said in a note.

Yuan depreciation will negatively impact China’s stock, bond and commodities markets, the brokerage said.

But the analysts think a big drop in the yuan is unlikely given limited room for dollar strength, and the fact that “China’s central bank will continue to exert certain control in the forex market.”

Signifying authorities’ hand, the onshore yuan trades more than 300 pips stronger than the offshore yuan CNH=D3whose value is decided more by market forces.

Traders are waiting for the release of the personal consumption expenditures price index in the US later on Friday.

The Federal Reserve’s preferred gauge of inflation may have picked up pace in February, according to economists polled -, potentially giving another boost to the dollar.

The yuan market at 4:05AM GMT:

ONSHORE SPOT:

Item

Current

Previous

change

PBOC midpoint CNY=SAEC

7,095

7.0948

0.00%

spot yuan CNY=CFXS

7.2269

7.2256

-0.02%

Divergence from midpoint*

1.86%

Spot change YTD

-1.79%

Spot change since 2005 revaluation

14.52%

Key indexes:

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