Continued Weakness of the Yuan... Lowest in 14 Years 7 Months in Onshore Market and Record Low Offshore

Regional and international markets see dollar surpass 7.2 yuan
People's Bank of China reference rate at 7.1107 yuan

[Image source=Yonhap News]

[Asia Economy Reporter Kim Heeyoon] Amid the continued ultra-strong US dollar, the value of the Chinese yuan against the dollar has fallen to its lowest level in over 14 years.

According to the US Wall Street Journal (WSJ), on the 28th, the yuan/dollar exchange rate traded within China exceeded 7.2 yuan for the first time since February 2008, and in the offshore market, it surpassed 7.2 yuan for the first time in over 10 years.

On the same day, the People's Bank of China, the country's central bank, set the yuan reference rate against the dollar at 7.1107 yuan, up 0.0385 yuan (0.54%) from the previous day. This marks the ninth consecutive trading day of yuan depreciation measures, with the yuan's value against the dollar hitting its lowest since June 2, 2020 (7.1167 yuan per dollar).

With expectations of continued aggressive US interest rate hikes, the yuan/dollar exchange rate surpassed 7 yuan on the 16th, reaching levels seen during the 2020 US-China trade war. It has continued to rise since then.

The potential slowdown in China's economy is cited as the cause. Earlier on the 26th (local time), WSJ and other foreign media reported that the World Bank (WB) downgraded China's economic growth forecast to 2.8% for this year. This figure is lower than the average 5.3% growth rate of 22 East Asian and Pacific countries excluding China, marking the first time since 1990 that China's growth rate falls below the regional developing countries' average.

This year, the yuan's value against the dollar has dropped about 13%, exceeding the average depreciation rate of emerging Asian currencies.

WSJ reported that there are also views that if China's trade surplus, which has helped defend the yuan, and its conservative monetary policy stance are reversed, the yuan's weakness could worsen further.

Amid concerns over economic slowdowns in the US and Europe, along with the possibility of weak Chinese exports, an accommodative monetary policy to stimulate the economy is also expected to be inevitable. Additionally, it is unlikely that China will actively use its foreign exchange reserves to defend the yuan's value.

As of 5 PM Korean time on the same day, the dollar index, which measures the dollar's value against six currencies including the yen and euro, rose to 114.29, the highest level since 2002, causing other Asian currencies to weaken as well.

The Japanese yen/dollar exchange rate rose to the 144-yen level for the first time in about 24 years, recording 144.76 yen that day. The won/dollar exchange rate also briefly rose to 1,442.2 won during trading.

With the benchmark 10-year US Treasury yield surpassing 4%, Asian stock markets also showed widespread weakness.

South Korea's KOSPI closed at 2,169.29, down 2.45% from the previous session, ending below the 2,200 mark for the first time in 2 years and 2 months. The KOSDAQ closed down 3.47% at 673.87.

Japan's Nikkei 225 fell 1.50%, Taiwan's TAIEX dropped 2.61%, and Australia's S&P/ASX 200 index declined 0.53%, respectively.

China's Shanghai Composite Index closed down 1.58%, Shenzhen Component Index fell 2.57%, and Hong Kong's Hang Seng Index was down 3.41% as of 5 PM Korean time.

This content was produced with the assistance of AI translation services.