SHANGHAI, July 17: The yuan edged higher against the dollar on Wednesday after the central bank set a stronger midpoint, but dealers think the potential for the yuan to rise further is limited given the weakness of the domestic economy.
The People’s Bank of China (PBOC) fixed its daily midpoint at 6.1652, 0.06 percent stronger than Tuesday’s fix, reflecting a 0.7 percent in dollar index but lagging the greenback’s strength.
Spot yuan was trading at 6.1320 versus the dollar at midday, rising 0.05 percent from Tuesday’s close.
China’s commerce ministry said on Wednesday that it will soon publish measures to support exports, which fell in June for the first time in 17 months, among a slew of weak data for the world’s second-largest economy.
‘The yuan is likely to remain flat, or fall slightly in the next month or so,’ said a dealer at a European bank in Shanghai.
The PBOC has let the yuan rise and fall moderately since early June amid a slowdown in economic growth after it allowed a relatively strong rally in the currency in April and May.
The Bank for International Settlement (BIS) index for the yuan’s real effective exchange rate (REER) – the currency’s value against a trade-weighted basket after adjustments based on inflation – appreciated 0.18 percent to 116.34 in June from 116.13 in May, the eighth consecutive month that the index showed the Chinese currency hitting a record high, according to BIS data released late on Tuesday.
Dariusz Kowalczyk, forex strategist and economist at Credit Agricole CIB in Hong Kong, wrote in a research note that he expects the PBOC to guide the yuan lower in future months, in both REER terms and nominally against the dollar.
(AGENCIES)
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