China's yuan holds ground on trade optimism, regulator vows stability
HONG KONG: China's yuan held steady against the US dollar on Wednesday, supported by regulatory pledges to maintain market stability and fresh optimism over US-China trade relations.
Sentiment improved after US Treasury Secretary Scott Bessent suggested a possible de-escalation of the US-Sino trade war, while noting negotiations with Beijing have not yet started and would be a 'slog'.
In addition, the State Administration of Foreign Exchange said on Tuesday that it would prevent excessive exchange rate fluctuations and guard against unusual cross-border money flows.
Regulators will also strengthen oversight and enrich their policy toolkits while correcting any pro-cyclical market behaviour, it added, apparently referencing options to prevent volatile currency moves. The yuan was 0.09% higher at 7.2995 to the dollar by 0420 GMT, 65 pips firmer than the previous late session close.
Its offshore counterpart traded at 7.3077 yuan per dollar , up less than 0.1% in Asian trade. China's central bank has been pushing back against bearish yuan sentiment, while dollar weakness has helped ease depreciation pressure on the yuan recently, analyst at CICC said in a note.
'With the yuan relatively stable, room for monetary easing has opened up, including potential interest rate cuts.'
Prior to the market opening, the People's Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.2116 per dollar, which was 1,350 pips firmer than a Reuters' estimate.
China's yuan pulls back, trade row keeps markets wary
The central bank has slightly eased its control on the currency, allowing official guidance to weaken past the key threshold of 7.2. However, it still came in stronger than market forecasts, which traders interpreted as an attempt to keep the yuan steady while allowing some flexibility to counteract tariff shocks.
Based on Wednesday's official guidance, the yuan is allowed to drop as far as 7.3558.
The dollar's six-currency index steadied at 99.17 after jumping 1.5% in the previous session, after President Donald Trump said he had no plans to fire Federal Reserve Chair Jerome Powell in a relief to investors.
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