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Yuan slips as Sino-U.S. tensions - Dollar holds fast before Fed

Yuan slips as Sino-U.S. tensions weighs on appetite

China's yuan slipped on Wednesday as Sino-U.S. tensions weighed on risk appetite, defying central bank attempts to guide it higher and despite the dollar index holding near a 2-1/2-month low.

The People's Bank of China set the midpoint rate at 6.4255 per dollar prior to market open, 102 pips firmer than the previous fix of 6.4357.

However, the spot market opened at 6.4250 per dollar and was changing hands at 6.4278 at midday, 28 pips weaker than the previous late session close.

The offshore yuan was trading at 6.4272 per dollar.

A trader at a foreign bank said the onshore yuan would probably trade in a range of 6.41 to 6.46 per dollar in the near-term, adding the U.S. Federal Reserve could taper earlier than expected if inflation speeds up.

Also souring sentiment toward the yuan were tensions between Beijing and Washington after a U.S. warship sailed through the sensitive waterway that separates Taiwan from China.

U.S. House of Representatives Speaker Nancy Pelosi on Tuesday called for a diplomatic boycott of the 2022 Winter Olympics in Beijing, criticising China for human rights abuses.

Dollar holds fast before Fed, bitcoin crumbles on China risk

The dollar steadied against major currencies on Wednesday as traders awaited U.S. Federal Reserve minutes, but bitcoin tumbled after China banned its financial institutions from offering services related to cryptocurrency assets.

The minutes from the Fed’s most recent meeting due later on Wednesday are expected to confirm that policymakers think a rate hike is still in the distance.

Investors will also be scrutinising consumer price data in Britain and Canada later in the trading day to determine how quickly major economies may be forced to rein in their accommodative monetary policy, which holds the key to the dollar’s trend in the medium term.

The British pound bought $1.4187, which was near its strongest level since late February.

The euro was steady at $1.2231.

The dollar was little changed at 108.96 yen.

Data last week showing U.S. consumer prices rose 4.2% in April from a year earlier was the fastest increase in more than a decade, raising fears the Fed will have to start raising interest rates sooner than expected.

Fed policymakers have said the spike is temporary and reiterated that they expect rates to remain low, which has taken some steam out of the dollar, though not all are convinced by the Fed’s line.

The dollar index against a basket of six major currencies was quoted at 89.732, close to the lowest since late February.

Expectations for policy tightening in Canada and the gradual lifting of coronavirus restrictions in Britain have lifted both countries’ currencies, but any suggestion of benign inflation could help the greenback recoup some of its losses.

In the cryptocurrency market, bitcoin tumbled below the closely-watched $40,000-mark to a three-month low of $39,000. Rival digital currency ether dropped by more than 13% to $2,900, which is a two-week low.

Regulatory risk has emerged as a negative factor after China banned its financial institutions from offering cryptocurrency registration, trading, clearing, and settlement in a blow to investors who were betting that digital assets will gain mainstream status.