Yuan Hits Seven-Month Low as Central Bank Weakens Fixing for Seventh Session

China's yuan fell to a seven-month low against the dollar on Thursday and is poised for its sixth consecutive monthly decline in June. The central bank has guided the official fixing weaker for seven straight sessions.

The yuan has hovered near the weak end of its daily trading band due to capital outflows into higher-yielding dollars and speculation that the central bank is allowing depreciation. On Thursday morning, the spot yuan (USDCNY) dropped to 7.2686.

Before the market opened, the People's Bank of China (PBOC) set the midpoint rate (USDCNY) at 7.127 per dollar, the weakest since November 21, 2023. Analysts at Citi noted that the PBOC's softer fixings indicate a lack of concern over the offshore yuan's depreciation.

The offshore yuan (USDCNH) broke the 7.30 per dollar level overnight, and UBS analysts suggest another lower fix could signal a move towards 7.35. As of 0247 GMT, the offshore yuan traded at 7.2963.

The yuan is down 2.3% this year, pressured by domestic issues such as a struggling property sector and weak consumption. Falling yields have driven capital outflows, and foreign investors are avoiding China's stock market.

The spot yuan (CNY=CFXS) opened at 7.2665 per dollar and was last trading at 7.2685. In cash settlement transactions, the yuan was quoted at 7.2710 per dollar, indicating it had hit the lower end of the band.

A weak yen, which languished near a 38-year low, also pressured the yuan, with markets watching for potential Japanese intervention. Additionally, China's industrial profits rose at a slower pace in May, highlighting ongoing economic struggles due to weak domestic demand.