China's yuan slumps to seven-month low on weaker guidance
SHANGHAI, July 2 (Reuters) -China's yuan slumped to a fresh seven-month low against the dollar on Tuesday, as the greenback strengthened following a surge in U.S. yields, with investors now contemplating the prospect a second Donald Trump presidency.
The currency was also weighed by a broad shift in the central bank's daily guidance that analysts say indicates authorities are willing to allow the yuan to ease further.
By 0323 GMT, the yuan CNY=CFXS was 0.04% lower at 7.2712 to the dollar after trading in a range of 7.2679 to 7.2714.
Prior to the market opening, the People's Bank of China set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1291 per dollar, its weakest since Nov. 21 and 1,483 pips firmer than a Reuters' estimate.
The spot yuan CNY=CFXS opened at 7.2679 per dollar and was last trading 28 pips lower than the previous late session close and 1.99% weaker than the midpoint.
Maybank said there has been a subtle change recently in the central bank's guidance with the average daily dollar-yuan fixing raised by 5.1 pips and 2.2 pips in April and May, respectively.
"That seems to have shifted to around nine pips/day in June with the seven-day moving averages rising to around 10-17 pips in the last week of June," Maybank said in a note.
"The PBOC likely recognised the higher-for-longer environment and yield gap could remain unfavourable against the yuan for a while longer and thus willing to allow more weakness in the yuan."
The yuan is down 2.3% weaker this year. It has been under pressure since early 2023 as domestic woes around a moribund property sector, anaemic consumption and falling yields drive capital flows and foreign investors stay away from struggling stocks.
Based on Tuesday's official guidance, the yuan is allowed to drop as far as 7.2717.
The dollar strengthened, hovering near an almost 38-year high to the Japanese yen, as the benchmark 10-year Treasury yield US10YT=RR climbed. Analysts attributed the move to expectations for Trump winning the presidency, resulting in higher tariffs and government borrowing.
Later in the day, U.S. Federal Reserve Chair Jerome Powell speaks at an event hosted by the European Central Bank.
That will bring the path for monetary policy into focus in a week that will see several closely watched employment reports including Tuesday's JOLTS job openings data, a Fed favourite.
The offshore yuan traded at 7.3049 yuan per dollar CNH=, up about 0.01% in Asian trade.
The dollar's six-currency index =USD was 0.057% higher at 105.9.
Reporting by Shanghai Newsroom; Editing by Sam Holmes
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