Pressure mounts as US economy stays strong; PBoC, BoJ dovishness adds weakness
CNY (7.242) ▼
- Despite weak US labour data and ISM services reading, the yuan continued to depreciate, close to the 7.25/USD level, its lowest in over six months. Steady demand recovery, as evidenced by China's solid trade data and rising inflation, has helped cap yuan losses but was offset by China weakening its daily reference rate. Additionality, the yuan was pressured by persistent capital outflow from China amid the PBoC-Fed monetary policy divergence.
- The divergence in economic indicators, particularly the upbeat Caixin PMI, which contrasted with the NBS PMI survey, suggests that China's recovery is struggling to maintain momentum, which may continue to weigh on the local note. Insufficient policy measures to boost domestic consumption, the ongoing property crisis, the wide interest rate gap with the US and a potentially unchanged Fed stance may keep the yuan above 7.20/USD for the time being.
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