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Yuan Nears 7-Month High, on Track for 5th Week of Gains

Yuan Nears 7-Month High, on Track for 5th Week of Gains

Friday, 28 August, 2020 - 05:00
Chinese 100 yuan banknotes are seen in this picture illustration taken July 11, 2013. REUTERS/Jason Lee/File Photo

The yuan strengthened to a near seven-month high on Friday, after the US Federal Reserve's announced an aggressive new strategy to lift employment and increased tolerance for higher inflation, and was on track for its fifth weekly gain.


The Federal Reserve on Thursday rolled out a sweeping rewrite of its approach to its dual role of achieving maximum employment and stable prices, putting new weight on bolstering the US labor market and less on worries about too-high inflation.


The dollar held gains against major currencies on Friday after the Fed's inflation shift.


But the outlook for the greenback remains weak, which could bode well for yuan's stability or appreciation, analysts at Chinese investment bank CICC said in a note.


Prior to the market opening, the People's Bank of China set the midpoint at 6.8891 per dollar, firmer than the previous fix of 6.8903.


The onshore yuan opened at 6.8855 per dollar and rose to 6.8759 at one point, within a whisker of a seven-month high of 6.8744 hit the previous session. By midday, it was changing hands at 6.8778 at midday, 168 pips firmer than the previous late session close.


If the yuan finishes the late night session at the midday level, it would have gained 0.55% to the dollar for the week, its fifth weekly gain in a row.


A stronger yuan is better for China as it ramps up its purchases of US goods under the countries' Phase 1 trade deal, said Shen Xinfeng, chief macroanalyst at Northeast Securities.


Top US and Chinese trade officials this week reaffirmed their commitment to the agreement, which has seen China lagging on its obligations to buy American goods.


Shen said the yuan also is benefiting from China's economic recovery.


Profits at China's industrial firms grew for a third straight month in July and at the fastest pace since June 2018, marking a bright spot in the economy as the manufacturing sector recovers from the coronavirus slump.


There was muted reaction to the latest headlines on Sino-US military tensions.


The United States and China traded jibes as tensions grow between the world's two largest economies, with the US defense chief vowing not to "cede an inch" in the Pacific and China saying Washington was risking soldiers' lives.


The offshore yuan was trading 0.08 percent away from the onshore spot at 6.8722 per dollar.


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