Chinese yuan prolongs fall to six-month low as US interest rates rise
Chinese yuan prolongs fall to six-month low as US interest rates rise

Chinese yuan prolongs fall to six-month low as US interest rates rise

(Bloomberg) – The yuan fell to its weakest level in six months, pressured by concerns about China’s growth prospects and a rise in US government interest rates.

China’s offshore currency weakened by as much as 0.7% to $ 6.4198 per dollar in New York trading, its weakest since October 2021. The decline comes as traders look at the risk of the world’s second largest economy snarled in lockdowns, quarantine and test rules. The yuan was also pressured by a rise in US interest rates and the dollar at odds of an even more aggressive Federal Reserve tightening.

On Monday, China’s central bank unveiled nearly two dozen measures and pledges aimed at boosting lending and supporting industries that have been hit by recent Covid lockdowns, including a pledge to guide banks to extend lending extensions.

“This is the strongest signal so far from the Chinese authorities that they are concerned about the growth conditions,” said Simon Harvey, Head of Currency Analysis at Monex Europe. “Coupled with regulatory tightening in the technology sector, the rising level of concern about domestic growth indicates a bad year for Chinese stock returns. Today’s currency reaction reflects this.”

Although first-quarter GDP data showed an increase in growth, a slowdown in production and retail data in March as economists further worried about China’s growth prospects due to damage from shutdowns.

In the US, meanwhile, investors are increasing bets on the size of the Fed’s next rate hike. While markets generally price an increase of 50 basis points, St. Louis Fed President James Bullard said Monday that increases of as much as 75 basis points should not be ruled out. Government interest rates rose across the curve on Tuesday, with the benchmark 30-year bond rising above 3% for the first time in three years.

It likely amplified losses for the yuan, which on Tuesday broke the key support level for its 200-day moving average. Japan’s yen also plunged, and it will extend its longest losing streak in more than half a century.

(Updates throughout.)

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