Yuan drops below 7 per dollar, hypes of key psychological mark ‘overblown’

Chinese yuan traded onshore and offshore slipped to below seven per US dollar on Friday, a two-year low since July 2020, as stronger dollar and expectations on larger Fed interest rate hikes in the next week – in response to US’ runaway inflation – weighed on the currency.

But yuan still remains relatively stable compared with the steep depreciation of other currencies of major economies, and is fluctuating at a reasonable range, backed up by good prospects for China’s resilient economy and policy support, analysts said, noting that certain media outlets’ hype of 7-mark as a psychological “bottom line” is overblown.

Despite the recent intensification of volatility in international foreign exchange market, both the State Administration of Foreign Exchange and Chinese economists asserted that, based on comprehensive data, the yuan’s exchange rate has performed steadily among the world’s major currencies.

Since mid-August, mainly due to the Fed’s strong response to high inflation, the US dollar index has increased by more than 4 percent, hitting over 110, a 20-year high.

During the same period, the British pound and the Japanese yen depreciated by about 5 percent against the dollar, and the euro has fallen below parity with the dollar multiple times.

Since August 15, the exchange rate of the offshore yuan against the dollar has fallen about 3.88 percent.

Guo Tianyong, head of the Chinese Banking Industry Research Center at the Central University of Finance and Economics in Beijing, told the Global Times that the yuan’s depreciation is mainly due to the tightening of monetary policy by the Federal Reserve to curb high inflation.

“But the trend also shows once again that we do not blindly protect the 7-mark, an indication of the fact that the behavior mechanism of the yuan’s exchange rate is more market-oriented and more flexible,” Guo said, adding the yuan’s exchange rate is at a reasonable range compared with other major currencies.