China’s yuan goes up a little bit, and the market thinks the economy will be hurt in the near future.
China’s yuan got a little stronger against the dollar on Thursday, but people’s moods were still hurt by the spread of COVID-19 across the country and worries about how it will affect the economy in the short term.
Currency traders said that the slight strength of the yuan followed the weakening of the dollar after the Bank of Japan made an unexpected change to its bond yield control earlier this week.
Before the market opened, the People’s Bank of China (PBOC) set the midpoint rate at 6.9713 per dollar, which was 63 pips or 0.1% lower than the previous fix at 6.965.
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The onshore yuan opened on the spot market at 6.9700 per dollar and was trading at 6.9771 at midday, which was 39 pips stronger than the previous late session close.
As COVID spreads through trading floors, there wasn’t much trading on Thursday. At noon, volume dropped to $6.1 billion, which is less than half of what it usually is, which is about $15 billion.
China’s cities have started giving out free fever medicines to the public as COVID-19 spreads through the world’s most populous country for the first time, largely unchecked because of a sudden change in how to stop it.
China’s yuan weakens in thin trade as worries about the effect of COVID on the economy grow.
Many economists and analysts said that Beijing’s decision to ease containment measures came much sooner than they had expected and could hurt the economy in the short term.
Serena Zhou, a senior China economist at Mizuho Securities, said, “On the one hand, this means that China may be able to get out of the pandemic much sooner, and it’s more likely that growth will pick up in 2Q23.”
“On the other hand, a shaky reopening could lead to higher inflation because it would disrupt the supply of both goods and workers.”
Zhou cut her growth prediction for the fourth quarter from 4.0% to 1.0% year-over-year.
This made her growth prediction for the whole year drop from 3.3% to 2.5%, which is much less than the government’s goal of “around 5.5″% set in March.
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Separately, state media reported on Wednesday that the cabinet said the government wants growth to improve by the beginning of 2023.
By noon, the global dollar index had dropped from 104.162 to 103.943, and the offshore yuan was worth 6.9807 per dollar.