Yuan loses ground

Major currencies were once again trading in tight ranges ahead of U.S. economic data, as investors digested the Treasury’s report on foreign exchange practices and Wednesday’s Federal Reserve meeting minutes.

The Treasury refrained from labeling China a currency manipulator in its biannual report on foreign exchange practices released late Wednesday, saying intervention by the People’s Bank of China has been limited this year. But it did issue a stern warning about yuan weakness, which has seen it decline by around 7% versus the dollar in 2018.

Analysts have largely attributed the yuan’s weakness versus the dollar in the year to date to market forces, including the emerging market selloff over the summer, as opposed to willful devaluation as a tactic in the U.S.-China trade war. A weaker currency makes a country’s goods more competitive on the global market.

The yuan weakened further in response to the report. In Beijing, the Chinese currency briefly touched its weakest level since January 2017 after the report’s release. One buck last fetched 6.9379 yuan USDCNY, +0.1747% up 0.2%. In the offshore market, the yuan was at its lowest level since August on Thursday, with one dollar buying 6.9419 yuan USDCNH, +0.2265% up 0.2%.

In other China news, the country’s gross domestic product data for the third quarter — expected at 6.6% on the year — is due at 10 p.m. Eastern.

Meanwhile, the ICE U.S. Dollar Index DXY, -0.04%  was slightly subdued on Thursday ahead of weekly jobless claims due at 8.30 a.m. Eastern, down 0.1% at 95.517.

Market participants were still digesting Wednesday’s Federal Reserve meeting minutes, which showed policy makers thought interest rates had to rise until the economy turned. This walked back some of the perceived dovishness from the last policy update in which the word “accommodative” was removed from the statement.

“The FOMC minutes may be being termed ‘hawkish’, but in truth revealed little outside of some concern about a rising U.S. dollar on [emerging-market] countries, but this is hardly news, of more interest was the concern expressed about leveraged loans and prices in some other assets classes, which re-emphasizes our oft made point that the Fed is watching overall financial conditions very closely, and for the time being this sustains their hawkish lean,” wrote Marc Ostwald, global strategist and chief economist at ADM Investor Services International.

In Brussels, the latest European Union summit on the topic of Brexit kicked off Wednesday, with the possible extension of the post-Brexit transition period to three years seemingly at the center of talks. This extension would give the U.K. an additional year to agree a trade deal with the EU and is considered an olive branch in the negotiations.

Both the euro EURUSD, +0.0348%  and the British pound GBPUSD, -0.1296% were somewhat upbeat on Thursday, trading at $1.1521 and $1.3124, respectively.

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Source: marketwatch.com

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