Ella 
The market was sluggish on Friday. Although the dollar/offshore yuan reversed from the year’s high the day before yesterday and the bullish bias retreated, the dollar/offshore yuan still struggled to maintain the dominance of the bears. That said, the offshore yuan (CNH) pared its intraday losses, closing lower for the second day in a row, falling to around 7.2900 by press time.
That said, a pullback in bond yields resonated with Chinese policymakers preparing for more stimulus to protect yuan bulls, even as concerns over a Chinese economic slowdown and stronger U.S. data provided support for USD/CNH prices.
U.S. 10-year Treasury yields were last down around 5 basis points (bps) at 4.25% after jumping to their highest level since 2007.
Elsewhere, the People’s Bank of China (PBOC) released its second-quarter monetary policy report and said it “will resolutely prevent the risk of over-adjustment of the RMB exchange rate. The People’s Bank of China has long defended the yuan’s exchange rate and has finally used the recent weakness in bond yields to support USD/CNH despite the market’s higher pricing in USD/CNH.
Even so, Evergrande, the country’s second-largest real estate developer and the world’s most indebted real estate developer, filed for creditor protection in a U.S. bankruptcy court on Thursday, according to the latest headlines from China, according to Reuters. It also fueled concerns about China, the world’s second-largest economy, and the transformation of the global economy as it grapples with a slowing economic recovery, as well as worries about the financial health of Country Garden, China’s largest real estate developer. Amid such concerns, top U.S. banks such as JPMorgan Chase & Co and Barclays have recently downgraded their growth forecasts for China’s economy.
Better US data and hawkish FOMC minutes may change the market’s dovish expectations for the Fed. On the data front, the Philadelphia Fed’s manufacturing survey was the strongest since April 2022 and rose for the first time in a year, while the indicator rose to 12.0 in August from -13.5 previously and -10.0 expected. Similarly, the number of Americans filing initial jobless claims for the week ended August 11 also fell to 239,000 after being revised up to 250,000 from the previous value, compared with market expectations of 240,000. Notably, both the four-week moving average of initial jobless claims and the weekly value of continuing claims rose as of Aug. 4. Earlier this week, U.S. industrial production and retail sales unexpectedly rose in July, but housing data was mixed.
On the other hand, the latest Fed meeting minutes showed that although Fed officials were divided on the issue of imminent interest rate hikes, most policymakers tended to support the need to deal with maintaining “high” inflation, which thus tested the market’s previous expectations that the Fed will raise interest rates. Facing concerns about policy inflection points, it is good for the dollar. Even so, gold bears were given respite as the CME FedWatch tool put the probability of no rate hike in September at nearly 86 percent.
