China's yuan fell to its lowest level since November as evidence grows that monetary policymakers are allowing the currency to weaken against the dollar.
The yuan fell to 7.2485 per dollar, its weakest since November. The currency had been heading lower as the People’s Bank of China gradually lowered its daily exchange rate to a level not seen in four months.
“The PBOC may allow the yuan to depreciate further to some extent,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank. “The PBOC is focused on slowing the pace of yuan depreciation, rather than defending a certain level, against a backdrop of a longer-term appreciation in the dollar.”
The yuan, along with other regional currencies, is facing increasing pressure as the dollar rebounds from a one-month low on bets the Federal Reserve will keep interest rates higher for longer. Beijing’s disappointing policy support for the struggling housing market is also weighing on investor sentiment.
The People’s Bank of China is in a constant battle to find the optimal pace of yuan weakness that will help growth without triggering market panic or capital outflows. The worsening capital outflows, manifested by increased foreign currency purchases by domestic companies and dollar holdings by exporters, have added to the pressure on the currency.
