Yuan Erases Years Gains Against Dollar as PBOC Steps Aside

By Bloomberg12 days ago

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© Reuters. Yuan Erases Years Gains Against Dollar as PBOC Steps Aside

(Bloomberg) -- The yuan is hurting after months of standing tall against the dollar.

In March, the currency gave up all its 2021 gains and then some. There are signs a short-term retreat may be starting as the drivers that lifted the yuan last year -- a quicker economic rebound from the pandemic and investors seeking yields -- get eroded, dimming the currencys appeal.

Investors flooded into Chinese bond markets in 2020, boosting yuan usage and furthering Chinas ambitions to internationalize its currency. But, a spike in Treasury yields is now cutting into the yuans yield premium, while an FTSE Russell index inclusion will now take place over a much longer period, slowing inflows. Throw in tensions between Beijing and Washington, and all these are speed-bumps for a currency that jumped almost 7% against the dollar last year.

Last year, 10-year U.S. versus Chinese government bonds were glaringly attractive whereas thats compressed now, Thu Ha Chow, a portfolio manager at Loomis Sayles Investments Asia in Singapore, said of yield spreads. Dollar-yuan can go up a bit, but not to the worrying levels like what we saw previously, she added.

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