Can China’s pummelled yuan find strength with US Fed pausing interest hikes?
- It has been nearly four months since the US Federal Reserve’s last interest rate hike – the 11th since early 2022 – but the impact still lingers in China’s markets
- China has been trying to stem a strong outflow of capital among investors seeking to capitalise on the stronger US dollar, and more stabilisation measures could be tried
Even with China getting a bit of a respite from the US Federal Reserve’s decision to pause its interest-rate hikes that have affected global markets, analysts say this “breathing room” does not remove the urgency that Chinese regulators face in curbing cross-market contagions while trying to stabilise the yuan exchange rate.
The rate increases added pressure on the yuan that has persisted, recently sending its exchange rate against the US dollar to a 16-year low, as the country is also grappling with multiple financial challenges, including foreign investors pulling capital from China’s onshore stock exchanges amid slumping equity prices.
“The pressure on China’s yuan will be slightly down for a short period [following the Fed’s decision],” said Ming Ming, chief economist at Citic Securities.
He described Fed chairman Jerome Powell’s speech as more “neutral”, despite the US official saying they remain willing to raise rates again after assessing job and inflation data between now and their next meeting in December.
The US dollar index – a gauge of the currency’s performance against a basket of other major currencies – was able to be pulled back from an 11-month high of 107, Ming said. The index goes up when the dollar gains “strength”, relative to other currencies.
