China's yuan traded near a 13-month low against the US dollar, fueled by widening yield differentials between the two economies.
China's yuan hovered near a 13-month low in holiday-thinned trading on Thursday, not far from breaching a key threshold, as widening yield differentials between the world's two largest economies continued to drag the currency. As of 0303 GMT, the onshore yuan was 0.07% lower at 7.2990 to the U.S. dollar, not far from the psychologically important 7.3 mark and a 13-month low of 7.2999 hit last week. The offshore yuan traded at 7.3039 yuan per dollar. The onshore yuan has lost 2.
76% so far this year, set for its third straight yearly loss, hurt by persistent deflationary pressure, property market woes and investor worries over U.S. President-elect Donald Trump's tariff threats. Uncertainties around the Federal Reserve's pace of monetary easing has supported Treasury yields and widened their premium over Chinese counterparts, which have been falling rapidly in the past few months to record low levels in anticipation of fresh stimulus to aid the economy. China's central bank officials recently said there was room to cut the reserve requirement ratio (RRR) further, which averages 6.6%. The gap between China's benchmark 10-year government bond yield and the U.S. 10-year yield is the widest in 24 years, prompting a chase for dollar-denominated assets and pressuring the yuan. 'The U.S. dollar is expected to remain relatively strong in 2025 and the yuan may depreciate moderately against the greenback while remaining relatively stable against a basket of currencies,' analysts at Huaxi Securities said in a note. 'The biggest uncertainty affecting the yuan's movements in 2025 will be the implementation and pace of Trump's tariff policy.' They expect the yuan to trade in a range of 7.3 to 7.5 next year, if the dollar index swings between 107 and 110. Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1897, which is 1,098 pips firmer than a Reuters' estimate of 7
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