China’s yuan weakened to its lowest level since July 2020 on Thursday as the country’s COVID-19 lockdowns and slowing growth weighed on its economic outlook.
The offshore currency fell 0.7% to 7.0186 per dollar, falling below the key psychological level of 7 per dollar.
At the same time, the dollar strengthened as consumer inflation, which came in higher than expected on Tuesday, prompted traders to bet on another huge rate hike from the Federal Reserve next week, with odds even rising for a 100 basis point hike.
The latest decline in the yuan comes despite efforts by the People’s Bank of China to support it. The central bank tried to fix the daily rate of the currency above the consensus and reduced the ratio for banks that hold foreign exchange reserves.
Still, the currency is at a similar level to December 2021 in trade-weighted terms, which could be considered slightly expensive against other non-dollar currencies, according to Bloomberg.
Meanwhile, China’s foreign exchange reserves fell to their lowest level since 2018 earlier this month, with the government blaming lower asset prices and a strong dollar.