Home Business News The yuan declines on weaker midpoint rate

The yuan continues its downward trend against the greenback, retesting its March 22 low.

Despite China’s announcement of a stronger-than-expected first-quarter GDP growth of 5.3%, exceeding both the previous quarter’s 5.2% and the anticipated 5%, the yuan remains near its lowest levels in five months.

This robust growth is expected to deter the authorities from further policy easing, providing some support to the yuan, although March’s industrial production and retail sales in China fell short of expectations.

Furthermore, the yuan is also facing a strengthening dollar and declining sentiment is putting pressure on the Chinese currency, prompting the country to adjust its defense of the currency.

The People’s Bank of China (PBoC) seems to be ready to tolerate further depreciation by setting a weaker daily reference rate for the yuan, amidst a broader greenback rally. Despite state-owned banks’ interventions to stabilize the yuan, market sentiment leans towards a bearish outlook.

Once considered a reserve currency, the yuan’s share in global reserves has dropped to a three-year low, indicating waning international investment in China as concerns about economic stability and geopolitical tensions remain. Low yields on Chinese bonds compared to other major nations also weigh on the currency.

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