China's yuan traded within a narrow range on Thursday, hovering near a one-month low against the U.S. dollar as persistent dollar strength and expectations of higher U.S. interest rates continued to pressure Asian currencies.
The onshore yuan was little changed at 6.8088 per dollar, remaining close to Wednesday's one-month low of 6.8141. The currency has fallen approximately 0.6% against the U.S. dollar so far in June, putting it on track for its weakest monthly performance since December 2024.
Meanwhile, the offshore yuan traded at 6.8129 per dollar during Asian trading hours, posting only modest gains as investors remained cautious ahead of key U.S. inflation data.
Market participants are closely watching the upcoming U.S. core Personal Consumption Expenditures (PCE) inflation report, a key measure of inflation monitored by the Federal Reserve. Stronger-than-expected inflation data could reinforce expectations for additional U.S. interest rate hikes, further supporting the dollar.
The U.S. Dollar Index, which measures the greenback against six major currencies, remained near a 13-month high at 101.53. The dollar's continued strength has created pressure across Asian foreign exchange markets, including the Chinese yuan.
Analysts noted that the offshore yuan, often viewed as an anchor currency for the region, is beginning to face increasing pressure. Investors have started rebuilding hedging positions as technical resistance levels have been breached and expectations for higher U.S. interest rates continue to rise.
Trading activity in the yuan market reached exceptionally high levels. Spot trading volume between the yuan and the U.S. dollar climbed to a record $71.4 billion on Wednesday, reflecting heightened market participation and increased investor positioning.
Before markets opened, the People's Bank of China set the daily midpoint fixing at 6.8209 per dollar, its weakest level since late May and notably weaker than market expectations. Under China's managed currency system, the yuan is allowed to fluctuate within a 2% trading band on either side of the official midpoint.
Bank of America analysts said the outlook for the yuan during the second half of the year appears increasingly challenging as they now expect the U.S. Federal Reserve to deliver three additional interest rate hikes. Higher U.S. rates could widen the yield gap between China and the United States, increasing pressure on the Chinese currency.
Despite these concerns, the bank maintained its year-end forecast of 6.70 yuan per dollar, citing continued dollar selling by Chinese exporters as a factor that could provide support to the currency.
Investors will continue monitoring U.S. inflation data, Federal Reserve policy expectations, and China's economic conditions for clues about the yuan's direction in the coming months. While the currency has remained relatively stable compared with some regional peers, sustained dollar strength may continue to present challenges for China's currency outlook.
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