February 28, 2020 / 9:21 AM / a month ago

Yuan reverses losses, but still set for first monthly loss since August

SHANGHAI (Reuters) - China’s yuan recouped losses from earlier in the day and finished the domestic session firmer on Friday, underpinned by broad weakness in the greenback over growing expectations of a U.S. interest rate cut.

FILE PHOTO: A Benjamin Franklin U.S. 100 dollar banknote and a Chinese 100 yuan banknote with late Chinese Chairman Mao Zedong are seen in this picture illustration in Beijing, China, January 21, 2016. REUTERS/Jason Lee/File Photo

The yuan ended domestic trading at 6.9896 per dollar, the strongest such close since Feb. 17.

However, the Chinese currency was still on course for its first monthly loss since August, due largely to investor fear about the rapid spread of the coronavirus outbreak.

The local currency will finish its late night session at 11:30 p.m. (1530 GMT).

World stock markets were headed for their biggest weekly loss since the depths of the 2008 financial crisis, while China stocks slumped on Friday to record their largest monthly drop since May last year.

Broader dollar losses driven by surging bets that the Federal Reserve could cut interest rates as early as next month supported the yuan on Friday.

The yuan has remained “relatively resilient”, compared with other major Asian currencies, said a trader at a foreign bank, thanks largely to a weaker dollar and signs the rate of infections on the mainland is stabilising.

“If global stock markets continue falling and risk aversion sentiment strengthens further, the yuan will weaken,” he said, adding the yuan’s movements would be highly dependent on Chinese stock and bond markets.

Mainland China - where the virus originated late last year - reported 327 new cases on Friday, the lowest since Jan. 23. But new infections reported overseas have now surpassed those in China.

“Elevated uncertainty on the growth outlook coupled with monetary easing (in China) will weigh on the yuan,” Eugenia Victorino, head of Asia Strategy at SEB said in a note, maintaining her forecast for the offshore yuan to finish the year at 7.15 per dollar.

Separately, investors will pay close attention to China’s February data to gauge the scale of disruption from the virus epidemic on the broader economy.

Economists expect China’s official Purchasing Managers Index (PMI) for February to show the factory sector contracted at the fastest pace since the global financial crisis. The PMI is due on Saturday.

The offshore yuan was trading at 6.9935 per dollar as of 0849 GMT.

Reporting by Winni Zhou and Brenda Goh; Editing by Sam Holmes and Alex Richardson

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