SHANGHAI (Reuters) – The yuan fell to a four-month low on Monday as tariff threats and the blended purchasing managers’ index (PMI) raised concerns that China’s economy may need additional policy support.
Yields fell to a low of 7.2675 per dollar, the weakest since July 24, despite a survey of private manufacturers on Monday showing Chinese factory activity grew at the fastest pace in five months in November.
The upbeat Caixin/S&P Global survey data followed a modest improvement in the official manufacturing PMI over the weekend, but a worse-than-expected PMI for the non-manufacturing sector, which also includes construction and services.
The mixed messages from the official PMI suggested the need for further policy support, leaving the yuan in a challenging position given ongoing US rate risks, said Paul Mackel, Global Head of FX Research at HSBC.
Newly elected US President Donald Trump on Saturday demanded that BRICS member states commit not to create a new currency or support another currency to replace the US dollar or face 100% tariffs.
Trump, who takes office on January 20, said last week he would impose an additional 10% tariff on Chinese goods. During his campaign he had threatened tariffs of more than 60%.
Before the market opened, the People’s Bank of China set the mid-rate, around which the yuan can trade within a 2% range, at 7.1865 per dollar, 519 pips firmer than the Reuters estimate.
The spot yuan opened at 7.2450 per dollar and was last trading 170 pips lower than the previous late session, which closed at 7.265 as of 0327 GMT and 1.09% weaker than the midpoint.
The offshore yuan traded at 7.2756 yuan per dollar, down about 0.35% in Asian trading.
Chinese 10-year government bond yields fell below a psychologically important 2% on Monday, to their lowest level in 22 years.
Citi analysts said in a note that downside risk to the economy was limited given the absence of a near-term catalyst. They said the next window for a major fiscal policy headline would be the mid-December Central Economic Work Conference and that any fiscal stimulus would likely be conservative.
The dollar’s six-currency index was 0.245% higher at 106.3.
LEVELS AT 0327 GMT
INSTRUMENT FLOW UP/DOWN( % DAY DAY
vs USD -) US CHANGE HIGH LOW
LAST YEAR TO-
CLOSE % DATE
Spot Yuan 7.265 -0.31 -2.26 7.245 7.267
Offshore 7.2759 -0.35 -2.06 7.251 7.277
yuan place 5 5
