Yuan eases on weakest guidance in nearly 9 months

Yuan depreciation: The Yuan depreciated against the Dollar on Tuesday following the People's Bank of China (PBOC) setting its weakest midpoint rate in nearly nine months. Traders are also awaiting key US inflation data and Chinese economic reports later in the week.

The PBOC set the midpoint rate at 7.1479 per Dollar, its weakest since November 2023. This rate was 281 pips stronger than a Reuters estimate.

At the start of trading, the Yuan was at 7.1780 per Dollar and was last seen at 7.1794 as of 0316 GMT, down 50 pips from the previous close and 0.44 per cent weaker than the midpoint rate.

Despite a 0.6 per cent gain against the Dollar this month, supported by a rising Yen and the unwinding of short positions following a surprise rate hike by the Bank of Japan, the Yuan remains 1.1 per cent weaker year-to-date. This decline is attributed to ongoing domestic challenges, including a struggling property sector, weak consumption, and volatile stock markets.

Market attention is focussed on upcoming US economic data, particularly the July consumer price index (CPI), which could influence the Federal Reserve's policy decisions and, in turn, affect the yuan-dollar exchange rate. Kristina Hooper, Chief Global Market Strategist at Invesco, noted, “There are concerns that the CPI data could impact the expected Fed rate cut in September, but recent data suggests a continued disinflationary trend, including the July jobs report.”

China will also release key economic data, including retail sales and industrial output, on Thursday.

The Yen has stabilized after significant fluctuations last week, with movements in the Chinese and Japanese currencies often showing strong correlation during market volatility.

Japan's Parliament is scheduled to hold a special session on August 23 to discuss the central bank's recent interest rate hike, according to government sources.
China's sovereign bond yields fell on Tuesday after recent surges, adding complexity to the PBOC's efforts to stabilize the weakening yuan.

(With Reuters inputs)