China's yuan bounces from two-month low on stronger central bank guidance
The yuan was underpinned by the guidance rate's premium over market forecasts hitting the widest level in three months, offsetting a resilient dollar in overseas markets, traders said.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 7.1494 per dollar, 568 pips firmer than a Reuters estimate of 7.2062. The gap hit the widest since April 30.
The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.
Market participants have monitored the central bank's daily reference rate to gauge the authorities' stance on the foreign exchange rate, traders and analysts said.
Thursday's guidance rate was 'a clear signal that the central bank wants to keep the yuan stable amid the prospect of a stronger dollar, given that U.S. trade policy is currently unfavorable for other countries and their currencies,' said a trader at a foreign bank.
The onshore yuan recovered from a near two-month trough of 7.2 hit overnight to trade at 7.1932 per dollar as of 0241 GMT.
Its offshore counterpart also rebounded, up about 0.18% in Asian trade to 7.2 yuan per dollar.
The dollar hovered near a two-month peak against global peers after Federal Reserve Chair Jerome Powell maintained a cautious stance on interest rates in a closely-watched policy decision on Wednesday, offering little insight on when they could be lowered.
'If, however, tariffs continue to pass through into inflation with reasonably resilient payrolls at a lower breakeven rate in light of more restrictive immigration policy, then the Committee's willingness to cut in September is likely to remain low,' said Derek Holt, head of capital markets economics at Scotiabank.
In Hong Kong, the Hong Kong dollar continued trading just pips away from the weaker end of its fixed trading band against the greenback, despite the city's de facto central bank's multiple interventions to defend the local currency.
'Carry remains appealing which will continue to exert upward pressure on spot USD/HKD and trigger additional FX intervention at times,' said Frances Cheung, head of FX & rates strategy at OCBC Bank.
'The process of interest rate and FX adjustment is likely to continue, until HKD interest rates normalise upward further.'
The Hong Kong dollar last traded at 7.8497 per U.S. dollar as of 0241 GMT.
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