China’s central bank sets weaker yuan midpoint against US dollar for third day

Chinese authorities have weakened the yuan’s midpoint against the US dollar for a third trading day, despite the European Central Bank chief joining a chorus highlighting the supposed undervaluation of the Chinese currency.

The People’s Bank of China set the yuan’s midpoint rate – which guides onshore market trading within a 2 per cent band on the up and down sides – at 6.8195 per US dollar, compared with 6.8171 on Tuesday.

A three-year high was set 6.8088 on June 15, buoyed by the easing of trade tensions between China and the United States following US President Donald Trump’s visit to China last month and China’s strong trade surplus.

On Wednesday morning, the onshore yuan opened about 0.05 per cent higher. The offshore yuan, a gauge of overseas supply-demand conditions and foreign sentiment, traded weaker at 6.79 per US dollar.

Many financial institutions have been predicting yuan appreciation, with the latest forecast by Switzerland’s Bank J. Safra Sarasin eyeing a yuan-US dollar exchange rate of 6.50 by the end of the year.

However, many analysts say they believe China’s central bank prefers a cautious stance and will avoid quick appreciation.

The currency has appreciated by about 3.6 per cent against the US dollar so far this year.

China’s high merchandise trade surplus – US$1.19 trillion last year – has fuelled discussion of the Chinese currency in developed markets.

Washington has previously accused China of resorting to currency manipulation to gain trade advantages, something Beijing has consistently denied.

On Monday, European Central Bank president Christine Lagarde urged global leaders to discuss the undervaluation of the Chinese currency.

“I hope there will be further discussions of ⁠excessive imbalances, which include a currency aspect to it, between the G7 leaders and beyond,” Reuters quoted her as saying at an event in Brussels.