Chinese yuan weakens on Pelosi's Taiwan visit
The yuan of China weakened slightly on Wednesday due to tensions over a visit to Taiwan by U.S. House of Representatives Speaker Nancy Pelosi.
The People's Bank of China set the midpoint rate at 6.7813 per dollar prior to the market opening, which was weaker than the previous fix of 6.7462.
The yuan opened at 6.7585 per dollar and changed hands at 6.7515 at midday, which was 15 pips weaker than the previous late session close.
Pelosi arrived in Taiwan on Tuesday, which China considers to be a breakaway province, prompting a furious response from Beijing at a time when international tensions already have been raised by Russia's invasion of Ukraine.
Asian markets are likely to trade sideways watching the US-China developments, said OCBC Bank in a note.
Stephen Innes, managing partner at SPI Asset Management said that the risk of escalation would be the immediate focus for markets once Pelosi leaves the region.
When Pelosi returns to the US, the issue to watch is whether or not the White House talks will be tough on China. The Federal Reserve officials talked about the potential for further interest rate hikes, as the U.S. dollar index fell overnight after a jump overnight.
On Tuesday, San Francisco Fed President Mary Daly and Chicago Fed President Charles Evans signalled that they and their colleagues are fully united over getting rates up to a level that will curb economic activity.
According to Ken Cheung, Chief Asian FX Strategist at Mizuho Bank, the recent speeches of the Fed suggested that the tightening cycle was far from over.
According to Zhang Ming, senior economist at the Chinese Academy of Social Sciences, that China will still face large capital outflow pressure, despite the fact that monetary policy divergence between China and the U.S. might continue.
The currency will remain between 6.6 and 7.0 against the dollar in the second half of 2022, according to Zhang.
The global dollar index fell to 106.063 from the previous close of 106.241. The offshore currency was trading at 6.7605 per dollar.
The spot yuan is trading stronger than the midpoint. The exchange rate can be increased or fall 2 per cent from the official midpoint rate that is set each morning by the People's Bank of China PBOC.
Non-deliverable forwards are settled against the midpoint, so the figure reflects the difference between the official midpoint and PBOC's official midpoint.