The yuan close to a 5-month low after hawkish comments from Fed officials

SHANGHAI, May 23 (Reuters) – China’s yuan fell to near a five-month low on Tuesday as hawkish comments from the US central bank chief supported the dollar, although investors expect a limited depreciation of the local currency from current levels.

The yuan in the mainland market fell by 0.16% to 7.0466 at 09:43 Moscow time, in the offshore market – by 0.19% to 7.0605.

The median fixed interest rate announced by the Central Bank of China on Tuesday was weaker than yesterday’s value.

If there is no rebound by the end of the Shanghai session, the yuan will close at its weakest level in five months.

Traders say China’s weak economic recovery is already heavily factored into the currency, and point to the People’s Bank of China’s commitment to keeping the market stable, which should deter any major sell-off in the yuan.

The dollar traded in a tight range on Tuesday after hitting a six-month high against the yen on rising expectations that US interest rates will remain high for a long time. Louis, Fed chief James Bullard said the day before that the Fed will likely have to raise US interest rates by another 50 basis points this year.

Despite this hawkish comment, as well as geopolitical tensions between Russia, the G7 and China, traders are not expecting a panic sell-off of the yuan.

Guo Lei of GF Securities noted that there is no reason for a prolonged and rapid depreciation of the yuan.

“The US economy will not be able to withstand too much of a rate hike, so the interest rate differential (between US and China) will not provide lasting support for the dollar.”

“Moreover, China’s economic slowdown has been fully priced in by the foreign exchange market,” Guo added. In the event of the yuan weakening too quickly, traders are counting on the Chinese central bank’s currency intervention.

The original message in English is available at the following code: (Reuters Bureau in Shanghai)