Yuan to slip as US dollar regains lost ground: Reuters poll

China’s yuan is expected to weaken slightly over the coming year as renewed hopes of sweeping tax reform in the US and gradual Federal Reserve rate hikes hand back control to the dollar, a Reuters poll showed.

Having fallen since early January, the dollar index, which measures the greenback against a basket of six major currencies, has rebounded nearly 3 percent after the Fed announced plans in September for its balance sheet reduction.

That has driven expectations for the yuan to surrender some of 2017’s gains, according to the latest poll of over 60 foreign exchange analysts.

The Chinese currency, which has gained over 4 percent this year, is now forecast to fall more than 1 percent to 6.72 per dollar over the coming year from Wednesday’s level of around 6.63.

But those expectations are largely dependent on a strong dollar, which is not at all certain. Any support for the greenback hinges mainly on Congress passing major tax reform, the Reuters poll of major currencies found.

“The yuan experienced a rapid appreciation in September, but it is not what the People’s Bank of China [PBC] wishes to see,” said Li Yi-shuang, FX analyst at China Securities. “So, I think two-way movements of the exchange rate will become more obvious in the next year, and it will depend in great part on the movement of the US dollar index.”

The PBC’s decision in September to remove a reserve requirement on foreign exchange trading on financial institutions is also slowing the pace of yuan appreciation.