Yuan recovers from 1-month low as dollar’s drive pauses

China’s yuan shook off a much weaker official midpoint and clawed back from a one-month low against the dollar on Thursday as the greenback paused after its recent rally.

The dollar was little changed near a three-and-a-half-month high against a basket of currencies in Asian morning trade, bolstered by higher US Treasury yields.

Prior to the market opening, the People’s Bank of China, the country’s central bank, set the midpoint rate at 6.3283 per dollar, the weakest level since March 21 and 0.34 percent weaker than the previous fix of 6.3066.

In the spot market, the yuan opened at 6.3245 per dollar and fell to a low of 6.3275, the softest level since March 23.

But it soon recouped losses and traded around 6.32.

However, some analysts and market participants expect the yuan to come under renewed downward pressure if US yields and the dollar continue to firm.

“Judging from the shrinking yield spread between the US and China last month, it no longer supports the yuan to strengthen further,” said David Qu, markets economist at ANZ in Shanghai.

The global dollar index, a gauge that measures the greenback’s strength against six other major currencies, stood at 91.11, compared with the previous close of 91.172. It rose to a high of 91.261 on Wednesday, its strongest since January 12.

Separately, China resumed a key outbound investment scheme on Wednesday, granting qualified domestic financial institutions fresh quotas to buy overseas stocks and bonds for the first time since early 2015.

Market watchers said expansion of the outbound investment scheme should have limited impact on the yuan.