China's yuan hovers near 15-year low after Fed decision

SHANGHAI: China's yuan hovered at a near 15-year low on Thursday (Nov 3), tracking broad dollar strength after US Federal Reserve Chair Jerome Powell signalled US rates would likely rise further than expected, dashing market hopes for a change in tone.

The Fed raised its benchmark funds rate by 75 basis points as widely expected, but said its battle against inflation will require borrowing costs to rise further.

The strengthening dollar pressured the yuan's guidance fix and spot trades.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 7.25 per dollar, 275 pips or 0.28 per cent weaker than the previous fix 7.22, and the softest since Jan 22, 2008.

In the spot market, the onshore yuan opened at 7.310 per dollar, eased to a low of 7.311, not far from a near 15-year low of 7.33 hit on Tuesday.

By midday, the spot yuan was changing hands at 7.30, 146 pips or 0.2 per cent weaker than the previous late session close.

Traders said the yuan weakness was largely reflecting the firmer dollar, but growing signs of a domestic economic slowdown were adding pressure on the local currency.

China's services activity contracted for a second straight month in October and by a sharper pace as COVID-19 containment measures hit businesses and consumption, a private-sector business survey showed on Thursday.

"We further lower our 2023 GDP growth forecast by 70 basis points, to 3.8 per cent," economists at Barclays said in a note.

"The downgrade is mainly attributable to our weaker outlook for the property sector and worsening external demand amid a looming global recession and rising geopolitical tensions."

A recent Reuters poll forecast China's growth to slow to 3.2 per cent in 2022, far below the official target of around 5.5 per cent, marking one of the worst performances in almost half a century.

Separately, some market participants said they would shift their attention to US jobs data due on Friday for more clues on the Fed's tightening trajectory.

By midday, the global dollar index rose to 111.93 from the previous close of 111.35, while the offshore yuan was trading at 7.32 per dollar.