China’s Yuan Eased Against the Dollar

In the first trading session after a long holiday, the Chinese yuan fell against the dollar; it was weighed down by market concerns about the weakening economic growth forecast after Shanghai prolonged its lockdown amid rapidly mounting COVID-19 infections.

On Wednesday, the country’s financial hub requested that all of its 26 million citizens take another round of COVID exams, with lockdown limitations until the exercise is completed.

According to a private-sector survey released on Wednesday, such restrictions have weighed heavily on China’s services sector activity; they have contracted at the fastest rate in two years in March, adding to investor concerns about broader economic disruptions.

The People’s Bank of China (PBOC) set the yuan’s midpoint rate (CNY=PBOC) at 6.3799 per dollar before the market opened; 290 basis points lower than the previous fix of 6.3509 and 6 basis points lower than Reuters’ prediction of 6.3793.

The onshore yuan (CNY=CFXS) began at 6.3720 per dollar in the spot market. It traded at 6.3678 at lunchtime, down 58 pips from the previous late session finish.

A strong dollar put pressure on the yuan. At the same time, Federal Reserve Governor Lael Brainard’s hawkish statements raised the possibility of more aggressive monetary tightening in the United States this year.

Gold Prices Ease as The Dollar Yields Steady

Gold prices fell on Wednesday as the dollar. Treasury rates soared to multi-year highs in response to hawkish remarks from US Federal Reserve officials; meanwhile, cautious traders awaited the release of the US central bank’s latest meeting minutes.

As of 0612 GMT, spot gold was down 0.3 percent at $1,918.74. Gold futures in the United States were down 0.2 percent at $1,923.10.

The dollar rose to its highest level in nearly two years as Fed officials urged for a swift decrease in the central bank’s ballooning balance sheet, with one of them suggesting openness to half-point rate hikes.

A strengthening dollar makes gold less appealing to holders of other currencies.

Key Fed members’ hawkish statements yesterday are likely to overshadow today’s FOMC minutes; it signals a 50 basis point raise at the next FOMC meeting and a speedier balance sheet reduction than expected.

The minutes from last month’s Fed meeting, which are coming at 1800 GMT, may clarify policymakers’ plans to reduce bond holdings and raise interest rates. The Federal Reserve’s posture has become increasingly hawkish.