Offshore Yuan Falls Most in Two Weeks as Fed Outlook Reassessed

  • Fed official says premature to rule out rate hike this year
  • Official factory PMI fell while private gauge rose in July

The offshore yuan dropped the most in two weeks, breaking a four-day run of gains, as a Federal Reserve official flagged the possibility of a U.S. rate increase this year.

The Chinese currency traded in Hong Kong weakened 0.2 percent to 6.6447 a dollar as of 5:46 p.m. local time, after jumping 0.46 percent Friday. The onshore yuan was little changed at 6.6399. The People’s Bank of China earlier strengthened its daily fixing by the most since June 23.

A gauge of the greenback’s strength rebounded on Monday as Federal Reserve Bank of New York President William Dudley said it’s premature to rule out further tightening this year. His comments came after the dollar tumbled on Friday following figures showing the world’s largest economy grew less than expected in the second quarter.

Investors may be rebuilding some long dollar positions after Dudley’s comments, said Fiona Lim, a senior currency strategist at Malayan Banking Bhd. in Singapore. "We expect the exchange rate to remain sensitive to expectations of a Fed hike," she added.

Stabilization Efforts

Chinese policy makers have boosted efforts to stabilize the yuan in recent days, with the central bank last week spurring bets that it is trying to keep the exchange rate from slipping past 6.7 to the greenback. The nation will step up monitoring of cross-border capital flows to prevent risks, Pan Gongsheng, head of the State Administration of Foreign Exchange, said in a statement posted on the regulator’s website over the weekend.

A factory gauge from Caixin Media and Markit Economics jumped to 50.6 in July, the highest since February last year, from 48.6 in June, data showed Monday. An official measure signaled contraction while most analysts surveyed by Bloomberg had predicted expansion. A Bloomberg replica of the trade-weighted CFETS RMB Index, which tracks the yuan against 13 currencies, weakened 0.36 percent on Monday, the most since June 6.

"The offshore yuan went through some adjustments today as it rose quite significantly on Friday," said Gao Qi, a strategist at Scotiabank in Singapore. "The lower-than-expected official PMI also weighed on market sentiment and pulled the currency weaker."

Before it's here, it's on the Bloomberg Terminal.