China's Yuan In The Pits vs U.S. Dollar Over Fed Hint Of More Rate Hikes

The Chinese yuan sank to the lowest level in two years after hawkish comments by Federal Reserve chairman Jerome Powell spurred a recent rally for the greenback, Laura He reported for CNN Business late on Aug. 29, 2022.

Photo Insert: The yuan's recent weakness has been also driven by "worse-than-expected economic data and rate cut."

The yuan — also known as the renminbi — lost about 0.5% against the dollar on Monday in offshore trading outside mainland China. It traded at 6.9277, the lowest level since August 2020. The yuan in onshore trading also weakened significantly, down 0.6% from the previous session.

The offshore yuan has fallen 3% versus the US dollar this month and was down 9.4% since March. The Citi analysts forecast the yuan to eventually reach 6.95 against the US dollar.

"Broad US dollar strength will likely remain supported by hawkish Fed messaging and growth divergence in favor of the US dollar," Citi analysts said in a note to clients on Monday, adding that this will continue to pressure Asian currencies.

The yuan's recent weakness has been also driven by "worse-than-expected economic data and rate cut," they added.

Stocks also sold off Monday. Japan's Nikkei 225 (N225) slid 2.7%, Korea's Kospi (KOSPI) fell 2.1%, and Hong Kong's Hang Seng (HSI) lost 0.8%. China's Shanghai Composite (SHCOMP) shed 0.1%.

The yuan has accelerated its fall against the US dollar this year, as China's economic outlook weakened and monetary policies in the US and China increasingly diverged. While the Fed has declared war on inflation and kept raising interest rates, China authorities have put fighting recession as their priority and cut rates aggressively.

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