China's yuan falls from six-month peak on rising dollar demand
SHANGHAI: China's yuan fell from a six-month peak against its US counterpart on Wednesday, pressured by rising demand for the dollar from corporates and offshore buyers after the greenback's recent dip.
The Chinese currency leapt to levels last seen in November in both onshore and offshore markets on Tuesday, breaching the psychologically important 7.2 per dollar level, as Beijing and Washington's agreement to pause their trade war boosted sentiment.
The deal inked between the US and China after weekend talks in Geneva surpassed market expectations, as both sides agreed to drastically unwind most of the tariffs imposed on each other's goods since early April.
The sudden strength prompted major state-owned banks to buy dollars and sell yuan in the onshore spot market to slow the pace of yuan rallies on Tuesday, sources told Reuters.
Those moves were followed by more dollar demand on Wednesday including buying interests from corporate clients and overseas listed Chinese companies for their dividend payments.
As of 0313 GMT, the onshore yuan was 0.18% lower at 7.2169 per dollar. It hit a six-month high of 7.1855 on Tuesday.
Its offshore counterpart was down about 0.22% in Asian trade at 7.2133 as of 0313 GMT.
Volkmar Baur, FX analyst at Commerzbank, said China still faced risks from deflationary pressures and that the impact from the Sino-US trade deal was likely to be only marginal.
'Further interest rate cuts by the central bank are perhaps not to be expected in the short term,' Baur said.
China's yuan strengthens
'Structurally, however, the direction is likely to be clear. Even though the yuan has enjoyed political tailwinds for a few days and USD/CNY is back below 7.20 for now, the yuan is more likely to weaken in the medium term.'
China delivered sweeping monetary easing measures last week, including interest rate cuts and a major liquidity injection.
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 7.1956 per dollar, the strongest since April 3.
The setting was 143 pips weaker than a Reuters' estimate of 7.1813, the first time since November the fixing was below market expectations.
Traders interpreted that as a sign that authorities may not want a too-strong yuan when the dollar is largely steady in overseas markets.
'With a more dovish-than-expected result to last weekend's US-China trade negotiations, and relatively limited signs of a broader surge in protectionism beyond the US, we are increasing our forecasts for China's export growth for the second time in a week,' Goldman Sachs analysts said in a note.
'We expect policymakers to allow gradual appreciation of the yuan against the dollar in an environment of broad dollar weakness.'
They revised yuan forecasts to hit 7.20, 7.10 and 7.00 on a three-, six- and 12-month horizon, compared with 7.30, 7.35 and 7.35, respectively, in a previous prediction.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
5 hours ago
- Business Recorder
European stocks flat as investors await outcome of US-China talks
European shares closed little changed on Tuesday in cautious trade as investors awaited the outcome of the second day of U.S.-China trade talks in London. The continent-wide STOXX 600 index closed unchanged for the second straight day, at 553.12 points. The two-day London meeting between the world's two economic powerhouses was still ongoing, a U.S. Treasury spokesperson said, while a separate U.S. official had said the two sides had ended direct talks. While President Donald Trump's upbeat comments on Monday about the talks had offered some hope the two countries would defuse their bitter trade dispute, the silence about any progress kept a lid on any breakout in stock markets. Any positive breakthrough in the negotiations is likely to provide relief to markets given that Trump's erratic tariff policies and the volatility of Sino-U.S. relations have already scarred both economies, dented supply chains, and cast a shadow over global growth projections. 'There's a lack of clarity on what an actual deal could be,' said Laura Cooper, head of macro credit and investment strategist at Nuveen. 'Until we see a substantial trade deal emerge, attention will be on the end of that 90-day pause and its implications if there isn't a deal in place.' The two countries are trying to revive a temporary truce reached in Geneva that had briefly lowered trade tensions and calmed markets. In European stocks, the financials index, shed 1.4%, led by a near 5% drop in UBS on investor concern that Swiss government proposals could shackle the bank with an additional $26 billion capital mandate. Defense stocks also retreated to an over one-week low. Conversely, energy stocks were the stand-out performer, boosted by higher oil prices. The healthcare sector advanced 1.2%, led by Novo Nordisk, which gained about 6% following a Financial Times report that activist hedge fund Parvus Asset Management was building a stake in the drugmaker. Vaccine makers such as AstraZeneca and Sanofi also climbed, despite the U.S. health secretary dismantling the U.S. Centers for Disease Control and Prevention's vaccine advisory committee. London's FTSE 100 flirted with a record high earlier in the session after fresh data revealed a sharp deceleration in British pay growth through April, coupled with unemployment hitting a four-year peak - strengthening the case for an interest rate cut by the Bank of England. Attention is also on a slew of key economic indicators from the region as well as the U.S., due through the week. 'With U.S. CPI data due on Wednesday, the mood could remain cautious,' said Fiona Cincotta, senior market analyst at City Index. Among other stocks, Bellway jumped 7.8% after the British homebuilder raised its forecast for full-year volume production. Shares of Aberdeen gained 6.3% after J.P. Morgan upgraded the fund manager's stock to 'overweight' from 'neutral'.
Business Recorder
5 hours ago
- Business Recorder
Oil up 1% at 7-week high on hopes of positive US-China trade talks
NEW YORK: Oil prices edged up 1% to a seven-week high on Tuesday on hopes trade talks between the U.S. and China - the world's two biggest economies - will result in a deal that could support global economic growth and boost oil demand. Brent crude futures rose 81 cents, or 1.2%, to $67.85 a barrel by 11:22 a.m. EDT (1522 GMT), while U.S. West Texas Intermediate crude rose 83 cents, or 1.3%, to $66.12. Those gains pushed both crude benchmarks into technically overbought territory for the first time since early April and put Brent on track for its highest close since April 17 and WTI on track for its highest close since April 3. U.S. Commerce Secretary Howard Lutnick said trade talks with China were going well as the two sides met for a second day in London, seeking a breakthrough on export controls that have threatened a fresh rupture between the superpowers. 'There's a sense of optimism around these trade talks; the market is waiting to see what this will produce, and that is supporting prices,' said Harry Tchilinguirian, group head of research at Onyx Capital. On the supply side, allocations to Chinese refiners showed that Saudi Arabia's state oil company Saudi Aramco will ship about 47 million barrels of oil to China in July, 1 million barrels less than June's allotted volume, Reuters reported. The Saudi allocations could be an early sign that the unwinding of OPEC+ production cuts might not result in much additional supply, Tchilinguirian said. Saudi Arabia cuts July oil prices to Asia to 4-year low after OPEC+ supply boost OPEC+, which pumps about half of the world's oil and includes the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia, put forward plans for an output increase of 411,000 barrels per day (bpd) for July as it looks to unwind production cuts for a fourth straight month. A Reuters survey found that OPEC's May increase to oil output was limited, with Iraq, the second biggest OPEC producer behind Saudi Arabia, pumping below target to compensate for earlier overproduction, and Saudi Arabia and the United Arab Emirates making smaller increases than agreed. Elsewhere, Iran said it would soon make a counter-proposal for a nuclear deal in response to a U.S. offer that Tehran deems 'unacceptable', while U.S. President Donald Trump made clear that the two sides remained at odds over whether Tehran would be allowed to continue enriching uranium on Iranian soil. Iran is the third-largest OPEC producer and any easing of U.S. sanctions on Tehran should allow Iran to export more oil, which should reduce crude prices. In Europe, meanwhile, the European Commission proposed an 18th package of sanctions against Russia for its invasion of Ukraine, aimed at Moscow's energy revenues, banks and military industry. Russia was the world's second biggest crude producer in 2024 behind the U.S., and any increase in sanctions will likely keep more of that oil out of global markets, which could support oil prices. US oil inventories and exports The American Petroleum Institute (API) trade group and the U.S. Energy Information Administration (EIA) are due to release U.S. oil inventory data on Tuesday and Wednesday, respectively. Analysts forecast energy firms added about 0.1 million barrels of oil to U.S. stockpiles during the week ended June 6. If correct that would be the first storage increase in three weeks and compares with an increase of 3.7 million barrels during the same week last year and an average increase of 2.8 million barrels over the past five years (2020-2024).
Business Recorder
7 hours ago
- Business Recorder
Wall Street mixed as US-China trade talks grab focus
Wall Street's main indexes were mixed on Tuesday as investors awaited the outcome of ongoing trade talks between the United States and China aimed at cooling a tariff dispute that has bruised global markets this year. U.S. Commerce Secretary Howard Lutnick said trade talks with China were going well as officials from the two sides met for a second day in London. Investors are hoping for an improvement in ties after the relief around a preliminary deal struck last month gave way to fresh doubts when Washington accused Beijing of blocking exports critical to sectors such as aerospace, semiconductors and defense. White House economic adviser Kevin Hassett said on Monday the U.S. was likely to agree to lift export controls on some semiconductors in return for China speeding up the delivery of rare earths. 'I think these issues will be resolved, but I think it's still early days … but the fact that they're talking certainly is positive,' said Mark Malek, chief investment officer at Siebert Financial. 'We're not making progress yards at a time, but inches at a time.' At 10:03 a.m. ET, the Dow Jones Industrial Average fell 20.22 points, or 0.05%, to 42,742.88, the S&P 500 gained 10.30 points, or 0.17%, to 6,016.18 and the Nasdaq Composite gained 53.92 points, or 0.28%, to 19,645.16. Seven of the 11 major S&P 500 sub-sectors rose, led by energy with a 1.7% gain, tracking strength in oil prices. Communication services stocks added 0.9%. Wall Street mixed with focus on US-China trade talks U.S. equities rallied sharply in May, with the S&P 500 index and the tech-heavy Nasdaq marking their best monthly gains since November 2023, helped by upbeat earnings reports and a softening of President Donald Trump's harsh trade stance. The S&P 500 remains about 2% below all-time highs touched in February, while the Nasdaq is about 2.6% below its record peaks reached in December. Investors are awaiting U.S. consumer prices data on Wednesday for clues on the Federal Reserve's rate trajectory. The World Bank slashed its global growth forecast for 2025 by 0.4 percentage point to 2.3%, saying higher tariffs and heightened uncertainty posed a 'significant headwind' for nearly all economies. Shares of McDonald's fell 1.4%, weighing on the blue-chip Dow Index, after a report Redburn Atlantic downgraded the fast-food giant to 'sell' from 'buy'. Most megacap and growth stocks were mixed. Tesla shares advanced 2.6%. Insmed shares jumped 27.7% after the drugmaker said its experimental drug significantly reduced blood pressure in the lungs and improved exercise capacity in patients in a mid-stage study. U.S.-listed shares of Tencent Music Entertainment Group advanced 2.2% after the Chinese company said it would buy domestic long-form audio platform Ximalaya for about $2.4 billion in cash and stock. Advancing issues outnumbered decliners by a 2.52-to-1 ratio on the NYSE and by a 1.76-to-1 ratio on the Nasdaq. The S&P 500 posted 7 new 52-week highs and one new low while the Nasdaq Composite recorded 42 new highs and 29 new lows.
