China's yuan remained relatively stable against the U.S. dollar on Thursday, as the dollar weakened following comments from the U.S. Federal Reserve Chair that reinforced expectations of impending rate cuts.
Overnight, the dollar index showed a decline, hovering near a one-month low as traders focused on the anticipation of U.S. interest rate cuts later this year.
Federal Reserve Chair Jerome Powell, in his prepared remarks to the House panel, indicated that rate reductions would likely be considered later in the year, contingent on the economy evolving as expected and gaining more confidence in inflation's consistent decline.
However, the yuan faced pressure due to easing expectations, leading yields on China's long-dated bonds to reach record lows. With the Fed initiating rate cuts, China could potentially have more room for monetary easing, as noted by People's Bank of China (PBOC) Governor Pan Gongsheng, who mentioned the possibility of further reducing banks' reserve requirements during a press conference on Wednesday.
China's policymakers are under increasing pressure due to a property crisis, deepening deflation, and rising local government debt, prompting calls for additional stimulus measures.
Government bond yields in China fell across the board, with the 10-year yield dropping to 2.255%, the lowest since April 2002.
Analysts at Citi cautioned that further easing could expose the yuan to steady weakness, though they expect the impact to be contained due to stability in fixing and reports of state banks selling dollars.
Ahead of the market opening, the People's Bank of China set the midpoint rate at 7.1002 per U.S. dollar, the firmest level in two months, around which the yuan is allowed to trade within a 2% band.
The spot yuan opened at 7.1950 per dollar and traded at 7.1986 at midday, 15 pips weaker than the previous late session close. The global dollar index fell to 103.331 from the previous close of 103.369, and the offshore yuan traded 112 pips weaker than the onshore spot at 7.2098 per dollar.
Paraphrasing text from "Yahoo Finance" all rights reserved by the original author.
