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US economy strength keeps pressure on yuan

(ATF) The yuan was set at 6.5641 Monday, 225 basis points lower than the previous day, and its lowest against the dollar in four months, according to the China Foreign Exchange Trading Center.

The dollar broke the 6.57 mark in the onshore market while the offshore rate closed at 6.5736, driven by dollar strength as the US economy shows progressive signs of recovery.

Analysts expect the dollar to remain strong as the American economy pulls ahead amid a successful vaccine programme and as the European Union’s economy falters under a resurgence of coronavirus infections.

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Geopolitical developments are likely to weigh on the yuan’s future performance as tensions with the US and other parts of Asia threaten to weaken investor confidence in the world’s second-largest economy.

“The economic situation, the attitude of the central bank and the flow of funds all point to the US dollar having entered a strong channel,” said Zhao Wei, chief economist of Kaiyuan Securities.

UBS predicts that the yuan range between 6.4 and 6.6 in the next three months.

Chris Gill

With over 30 years reporting on China, Gill offers a daily digest of what is happening in the PRC.

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