Key Takeaways
- China’s yuan dipped against the dollar as investors awaited details of the Trump-Xi summit.
- US dollar rallied to its highest level in nearly two months due to rising rate hike expectations.
- The People’s Bank of China set the midpoint rate at 6.7489 per dollar, weaker than expected.
China’s yuan weakened against the dollar on Thursday, reflecting investor caution ahead of the Trump-Xi summit in Washington. The yuan traded at 6.7171 to the dollar, a 0.09% decrease from the previous day.
The US dollar reached its highest level in nearly two months, driven by heightened expectations of a near-term Federal Reserve rate hike. This move pushed benchmark 10-year Treasury yields to their highest since 2007, exerting pressure on Asian currencies, including the yuan.
US President Donald Trump welcomed Chinese President Xi Jinping to Washington for a three-day visit. Treasury Secretary Scott Bessent announced that the trade truce between the two nations would be extended until January 10, a shorter duration than market expectations.
Despite the extension, market participants remain skeptical, with low expectations for significant outcomes from the talks. Analysts suggest that the key focus will be on any new developments regarding tariffs and technology.
The offshore yuan traded at 6.7182 per dollar, down about 0.09% in Asian trade. The dollar’s six-currency index stood at 101.15, indicating the strength of the US dollar against other major currencies.
Kaiyuan Securities noted that the yuan’s recent rally to a 3-1/2-year high reflects market expectations of improved US-China relations. However, the key focus now is on any new incremental developments during the summit.
The People’s Bank of China set the midpoint rate at 6.7489 per dollar, 305 pips weaker than a Reuters estimate, reflecting the central bank’s efforts to manage the yuan’s exchange rate.
Separately, China’s central bank announced plans to inject up to 1 trillion yuan ($149 billion) per day via short-term liquidity tools as the Golden Week holiday approaches, aiming to maintain liquidity levels.
OCBC strategists expect the yuan to remain within familiar ranges, citing the potential thinning of liquidity due to upcoming holidays.
