Yuan weakens as PBOC eases and Fed shrinks

    SHANGHAI, Aug 27 (Reuters) - The yuan eased on Friday
against the U.S. dollar due to  expectations that China's
central bank will loosen monetary policy as the economy slows
down, while the U.S. central bank is expected to begin tapering
its stimulus.
    After a weaker midpoint rate setting by the
People's Bank of China, the spot yuan  opened at
6.4860 per dollar and was changing hands at 6.4832 at midday, 17
pips weaker than the previous late session close. 
    Bank of America said in a note that it now expects the yuan
to depreciate to 6.60 per dollar by the end of this year, citing
the prospect of a rate cut.
    "We expect this to result in monetary policy divergence
between an easing central bank in China and tapering Federal
Reserve," the bank said, adding slowing Chinese exports would
also weaken the yuan.
    Ting Lu, Chief China Economist at Nomura, said in a note on
Friday that the probabilities of an interest rate cut and a
reduction in banks' required reserve ratio were both rising, due
to the "rising risk of a worse-than-expected slowdown." 
    "In coming months, we expect China' GDP growth to drop
significantly, driven by the latest wave of COVID-19, slowing
exports, property tightening and the campaign to reduce carbon
emissions," Lu wrote.
     Earnings at China's industrial firms in July slowed for the
fifth straight month, data released on Friday showed.

    In contrast, U.S. corporate profits surged to a fresh record
high in the second quarter, boosted by robust demand and higher
    The dollar was boosted on global markets ahead of the
upcoming Jackson Hole Symposium for central bankers, hosted by
the Fed. 
    The market's focus is locked on Fed Chair Jerome Powell, in
case he offers any insight into plans for tapering during his
speech to the symposium later in the global day.  
    Expectations rose after Fed presidents James Bullard, Esther
George and Robert Kaplan urged the central bank to begin paring
bond purchases.
    The yuan market at 5:01AM GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.4863   6.473     -0.21%
 Spot yuan          6.4834   6.4815    -0.03%
 Divergence from    -0.04%             
 Spot change YTD                       0.69%
 Spot change since 2005                27.66%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         98.75       98.73     0.0
 CNH index                             
 Dollar index    92.978      93.053    -0.1
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People's Bank of China (PBOC) allows the exchange rate to
rise or fall 2% from official midpoint rate it sets each

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.4808    0.04%
 Offshore              6.6549    -2.53%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.

 (Shanghai Newsroom)

Leave A Reply

Your email address will not be published.