Juan pulls back as the uneven economic recovery affects sentiment

SHANGHAI, March 15 (Reuters) – The Chinese yuan weakened against the dollar on Wednesday as a series of data showed an uneven economic recovery after Beijing abandoned its brutal “zero tolerance” policy for COVID, dampening market sentiment.

Investors were also cautious about whether the Federal Reserve would raise interest rates next week after the collapse of two banks sparked fears of a wider US financial crisis, although market anxiety has begun to subside.

Retail sales in China returned to growth in the first two months of 2023, at a slightly slower pace than expected. This may indicate that the affected Chinese economy needs more time to fully recover from the effects of the pandemic.

“We believe the Chinese yuan will remain weak as economic recovery should naturally lead to a lower current account surplus while geopolitical risks remain in focus,” Goldman Sachs analysts wrote in a note.

“Officials have focused on stimulating growth and, in our view, will argue against a significant appreciation of the yuan against a basket of currencies calculated by the China Trading Monetary System (CFETS).”

Before the opening of the session, the Central Bank of China announced a median fixed exchange rate of 6.8680 yuan to the dollar, which is 269 points or 0.4% higher than the previous value of 6.8949.

At 09:50 Moscow time, the yuan in the mainland market fell 0.31% to 6.889, in the offshore market it fell 0.1% to 6.8891.

However, the yuan’s weakness was constrained by uncertainty about the trajectory of Fed tightening and its impact on the dollar.

The dollar found support as investors eased expectations for interest rate cuts in the US due to calming concerns about the banking crisis and further data pointing to stubbornly high inflation.

In addition, the People’s Bank of China increased its medium-term liquidity injections, extending loans maturing for the fourth consecutive month at an unchanged interest rate.

The original message in English is available under the code: (Winnie Zhou and Brenda Guo)