Yuan slides as market seeks tapering cluesFinance | Reuters and Staff reporter 16 Jun 2021
China's yuan eased to its weakest against the dollar in more than a week yesterday, as the greenback sat below a one-month high against major peers ahead of a closely watched Federal Reserve meeting.
The onshore yuan dropped 107 basis points to 6.4021 per US dollar, the lowest in more than a week.
The yuan's moves were limited following a long holiday weekend as traders adopted a wait-and-see approach, though market players expect the Fed's discussion on how to taper its US$120 billion (HK$936 billion) in monthly bond purchases to begin cautiously.
"The expectation is that the US is still going to begin discussion of tapering slowly. In this sort of situation the dollar won't be too weak," said a trader at a foreign bank. "Of course, the pace of US and European policy exits is a risk for dollar changes."
In China, policymakers kept to a steady course, with the People's Bank of China rolling over 200 billion yuan (HK$242.46 billion) in maturing one-year medium-term lending facility loans yesterday. The bank kept the one-year rate unchanged for a 14th straight month.
"With benign inflationary pressure and RMB appreciation bias, the PBOC lacks motivation to kick off its rate hike cycle for now," said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
Before the market opened yesterday, the PBOC set the yuan's midpoint rate at 6.407 per dollar, its weakest since June 4.
The yuan's weakening this month has been in stark contrast to steady strengthening in May, which prompted a chorus of official warnings against one-sided expectations of yuan appreciation.
An article in the PBOC-backed Financial News yesterday quoted analysts as saying that the yuan is approaching a depreciation inflection point, and that it is likely to come under more pressure in the second half.