Chinese Yuan Drops Below 7 As Economic Recovery Stalls

Chinese Yuan Drops Below 7 As Economic Recovery Stalls by Ashly Chole last updated on May 24, 2023

China's offshore Yuan lost momentum on Wednesday and dropped below the 7.00 level. This comes at a time when the economic readings from China are casting some serious doubts about the economic recovery this year.

Overall, the offshore Yuan lost 0.1% of its value and was last seen trading near 7.0030. This is the first time since the start of 2023 that the offshore Yuan has plunged so low.

And if we look at the USD/Yuan spot pair, it lost 0.2% and was last seen trading at 6.9895. According to experts, such low levels were only last seen in December 2022.

7 Is An Important Level For Yuan

For the most part, the 7.00 level is arbitrary, but it appears that Chinese authorities pay close attention to it. That's why whenever the Chinese Yuan tried to cross this threshold, the Chinese authorities rolled out economic measures.

So if we say that the breach of this level is a sign of weakness for the Chinese currency & its economy, then it wouldn't be wrong at all.

Recently, the economic data coming out of China is weaker than expected, which is supposedly taking a toll on the Yuan as well. For starters, the industrial production and even the retail sales data from China reveal a slower-than-expected economic recovery.

Another important event was from the People's Bank of China which fixed the rate of Dollar/Yuan at a weaker level.

And when we combine all of these with the disinflation in China, it will increase the chances of rate cuts from the PBOC. After all, that's the only viable way to spur economic growth in the country.

The Loan Prime Rate of China is also at record low levels after a series of rate cuts from the PBOC last year. At that time, the Chinese Yuan also plunged below the 7.00 level.

Looking ahead, it appears that more weakness is on the cards for the Chinese Yuan unless the PBOC introduces some extraordinary measures.