Chinese yuan holds firmer than expected, despite slide
ALBAWABA – The Chinese yuan slipped further on Tuesday, closer to the limit of its fixed trading band against the United States (US) dollar, which hit a 10-month high on Tuesday against a basket of major currencies, news agencies reported.
Meanwhile, the Japanese yen continued its slide deeper into the intervention danger zone, according to Reuters.
Resilient economic data, hawkish Federal Reserve (Fed) rhetoric and a budget deficit to be financed by borrowing all bolstered the 10-year US Treasury yield by more than 45 basis points (bps) in September. It hit the top 4.5 percent for the first time since 2007, Reuters reported.
Across the Pacific, the onshore Chinese yuan was little changed around 7.31 per dollar Tuesday morning, compared with the PBOC’s fixing of just over 7.17. However, it did slip further this week, trading at more than 1.9 percent below the People’s Bank of China daily reference rate, according to Bloomberg.
The Chinese yuan is fixed to a trading limit of 2% on either side of the fixed midpoint set by the central bank - Shutterstock
In fact, the yuan slipped to the closest since last October to the limit of the band-range. Notably, the Chinese central bank limits the currency’s allowed exchange range by 2 percent on either side.
To stop the Chinese yuan from hitting the trading limit — at which point liquidity may dry up — the PBOC could choose to weaken the daily fixing, effectively allowing it to catch up with spot rates. That, however, sends a signal that Beijing is greenlighting depreciation, which could result in even sharper declines and fund capital outflows, Bloomberg explained.
The cost to borrow the currency in Hong Kong over the short-term surged to the highest since 2022. This raised speculation that China may be mopping up liquidity overseas to support the exchange rate, Bloomberg reported.
China's yuan held at 7.3099, but only thanks to its trading band midpoint being fixed some 1400 bps firmer than forecast, leaving it very close to the weak end of its allowed trading band.
Chinese yuan, Japanese yen slide as western currencies pick up
The euro recovered from Monday's 0.5 percent drop and was parked by a six-month low at $1.0584. Over the quarter, the euro is on course for a 3 percent drop, its worst quarterly percentage loss in a year, Reuters reported.
The Pound Sterling is also set to rise three quarters of gains, with a loss of 3.8 percent over the three months to September. It fell to a six-month low of $1.2195 overnight and traded only marginally higher in the Asia session.
The U.S. dollar index touched its highest since November at 106.1 on Monday and was at 106.03 on Tuesday, according to Reuters.
The Euro picked up as the Chinese yuan slipped - Shutterstock
Elsewhere, in Europe, the Swiss franc tumbled through its 200-day moving average to hit its lowest since June after the central bank surprisingly kept short-term rates on hold.
The Japanese yen has slowly but inexorably slid toward the 150-per-dollar mark as policymakers stuck with ultra-easy monetary policy.
This is seen as a likely red line for the finance ministry, whose warnings of possible intervention have stepped up in recent weeks. Traders are looking to a meeting of political leaders and Bank of Japan officials on Tuesday for answers and signs on further measures.
The yen hit 148.97 to the dollar on Monday and last traded at 148.88, as reported by Reuters.
The Aussie was last steady at $0.6417 and the Kiwi at $0.5962.
