USD/CNH Trades in a Range: Can FOMC Drive Breakout?
The Chinese yuan has eased lower against the US dollar in early trading on Wednesday despite the weakness in the greenback ahead of the FOMC’s policy meeting announcement coming later today. At the time of writing, USD/CNH is trading at around 6.482.
At the start of the session, the PBOC set the official midpoint rate of the yuan at 6.4853 against the US dollar, the strongest level seen since mid-March. The currency pair is trading within a range as markets seem hesitant to make too many moves before hearing from the Fed on its outlook towards monetary policy.
Although no change is expected in interest rates and monetary easing in the current meeting, there will be considerable interest to see if the US central bank will offer any hints about when it could plan to start tightening its monetary policy as the economy recovers from the coronavirus crisis. While analysts have a mixed outlook towards the dollar for now, they are optimistic that the Chinese yuan will maintain its strength as China’s economy rebounds strongly in the coming months, buoyed by growth in external and domestic demand.
Economists expect China to post the fastest economic growth in 2021, which can keep the yuan supported against other major currencies. On the other hand, the dollar’s safe haven sheen wanes as the global economy emerges out of the crisis, but the possibility of high inflation in the US could send Treasury yields higher, driving strength in the greenback.
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