Yuan set for first weekly loss in six weeks as equity rout dents sentiment

China's yuan weakened against the US dollar on Friday and was headed for its first weekly decline in six weeks, as softer official midpoint guidance and a sharp selloff in equities weighed on investor sentiment, Reuters reported.

The onshore yuan slipped to 6.6690 per dollar as of 0255 GMT. If the losses hold through the end of trading, the currency will have declined around 0.2% for the week, snapping a five-week winning streak. The offshore yuan was trading at 6.6671 per dollar, down about 0.03% during Asian trading.

Chinese equities tumbled on Friday, tracking a sharp overnight selloff on Wall Street, where the technology-heavy Nasdaq recorded its steepest single-day decline since the April 2025 market rout triggered by US President Donald Trump's tariff announcements.


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Adding to pressure on the yuan, the People's Bank of China (PBOC) set its daily midpoint rate at 6.7168 per dollar before the market opened on Friday, 406 pips weaker than a Reuters estimate of 6.6762. The onshore yuan is permitted to trade within a 2% band on either side of the daily midpoint.

Market participants were also assessing the central bank's decision earlier this week to increase the foreign currency reserve requirement for financial institutions. The move discouraged some investors from betting on further near-term yuan appreciation, Reuters reported, citing traders and analysts.

Societe Generale Asia rates strategist Kiyong Seong said the yuan appeared closer to its peak, with the PBOC increasingly signalling resistance to one-sided appreciation. The bank expects the dollar-yuan exchange rate to bottom at 6.60 in the first quarter of 2027, Reuters reported.

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However, seasonal factors could provide support to the Chinese currency towards the end of the year. Chinese exporters typically convert a larger portion of their foreign currency earnings into yuan in December and January to meet accounting and administrative requirements, as well as to fund employee bonuses and holiday-related expenses ahead of the Lunar New Year.

These seasonal foreign exchange conversions generally increase demand for the yuan and support its appreciation towards the year-end and early part of the following year, Reuters reported.

UBS Securities chief China economist Yu Song said tighter oversight of outbound investments and overseas trusts this year had also limited capital outflows at the margin, reinforcing the seasonal support for the currency.

Song expects the yuan's appreciation cycle to have further room to run, although the PBOC is likely to use its daily fixing and other policy tools to manage the pace of gains. External pressure for a faster appreciation could also increase, Reuters reported.

Meanwhile, investors will turn their attention to the US non-farm payrolls report for fresh clues on the Federal Reserve's monetary policy outlook, which could influence the dollar and broader currency markets.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)