SHANGHAI, June 22 (Reuters) – China’s yuan weakened on Wednesday ahead of Federal Reserve Chair Jerome Powell’s testimony to Congress later in the day, with traders looking for further clues on how aggressively the Fed will hike rates at its July meeting and beyond.
The People’s Bank of China set the midpoint rate at 6.7109 per dollar prior to the market open, weaker than the previous fix 6.6851.
In the spot market, the yuan opened at 6.6946 per dollar and was changing hands at 6.7160 at midday, 250 pips or 0.37% weaker than the previous late session close.
“Any hawkish deviation from previous communicated messaging could un-nerve sentiment and send UST yields and USD rising again,” Maybank analysts said in a note, referring to Powell’s testimony.
The yuan has stabilized over the past month, following a slump in April and early May on concerns over the economic damage from China’s widespread COVID-19 lockdowns and the fallout from the Russia-Ukraine crisis.
“While there could be some relief for the yuan on signs that the Covid situation may be under control, the overarching zero-Covid strategy could continue to hurt the recovery of private consumption and investment,” Maybank analysts said.
“Gains may be capped in the face of recovery uncertainties,” they added, expecting the currency may continue to remain within the 6.60-6.80 range.
“There is still some depreciation room for the yuan due to the negative China-US yield spread, and China’s exports are also slowing with the slowing US PMI,” said Max Luo, Director of Asset Allocation China at UBS Asset Management.
“In the mid-term, the yuan will gradually depreciate owing to those two reasons, while the market’s focus is on COVID recently.”
US President Joe Biden is considering scrapping tariffs on a range of Chinese goods to curb inflation, but no decision is likely before next week’s Group of Seven summit, people familiar with the matter said.
The global dollar index rose to 104.597 from the previous close of 104.435. The offshore yuan was trading at 6.718 per dollar.
(Reporting by Shanghai Newsroom; Editing by Kim Coghill)
This article originally appeared on reuters.com