The yuan lost ground against the dollar on Monday despite a cut in a benchmark interest rate from China’s central bank, as the move was deemed insufficient by the market to support the currency.
Around 9:25 a.m. GMT (11:25 a.m. Paris), the yuan, whose exchanges are supervised by the authorities, fell by 0.22% to 7.3005 yuan for one dollar. On Thursday, the currency fell to its lowest since November, 7.3175 yuan per dollar.
On Monday, China decided to cut the one-year interest rate, which serves as a benchmark for business loans, from 3.55% to 3.45% to revive the economy by counting on more loans to individuals and businesses. . The 5-year interest rate was kept stable at 4.2%.
Highly followed by the markets, these two rates are at historic lows. This is not enough, say UBS analysts, recalling that the market was expecting a larger decline of 15 basis points.
This unconvincing drop in interest rates (…) weighs on Chinese risk assets like the currency, analysts add.
As policymakers have entered a phase of stronger (economic) support, the approach so far has been too measured to revive general confidence, they continue.
China is indeed facing a serious crisis in the real estate sector, and the post-Covid recovery hoped for in China after the lifting of health restrictions at the end of 2022 is running out of steam.
Later in the week, the market’s attention should turn to the annual meeting of central bankers in Jackson Hole, USA, where Jerome Powell, Chairman of the US Federal Reserve (Fed) and Christine Lagarde, President of the Bank Central European Union, are due to deliver speeches on Friday.
With inflation falling faster in the US than in Europe or the UK, we believe the peak is nearer for US rates than for European rates, and the Fed may consider easing policy sooner than other central banks, say UBS analysts.