After holding firm for some time, the yuan is set to weaken - dragged down by fears over the spread of the novel coronavirus - as the number of new reported infection cases around the world continues to rise.
The offshore yuan weakened for the fourth consecutive day on Friday, while the onshore yuan opened down and breached the level of 7.03 per US dollar to reach its lowest level in two-and-a-half months.
The yuan has eased 0.6 percent against the US dollar since the start of this year. This depreciation is quite limited, compared to the currencies of other economies in Asia such as the South Korean won and the Singapore dollar
As of 4:30pm on Friday, the onshore yuan was quoted at 7.0375 against the greenback, while the offshore yuan fell to 7.0486.
Prior to the market opening, the People's Bank of China (PBOC) set a weaker-than-expected daily midpoint rate of 7.021 per dollar, 0.26 percent down from the previous day of 7.0026 - the lowest since December 12, 2019.
The yuan has eased 0.6 percent against the US dollar since the start of this year. This depreciation is quite limited, compared to the currencies of other economies in Asia such as the South Korean won and the Singapore dollar. The euro also has fallen by 3.6 percent this year.
There are signs that the novel coronavirus is spreading in Asia; infections in South Korea have nearly tripled in the past three days to reach 156 cases. Moreover, two passengers from the Diamond Princess cruise ship, who were infected with the virus, died in Japan on Thursday.
The weakness in Asian currencies has made US dollar a popular safe haven. The US Dollar Currency Index, which measures the greenback’s strength against six other major currencies, rose to almost 100, its highest level in three years.
The currencies of Asian countries are expected to be volatile temporarily in the near term due to the negative impact of the coronavirus, said Chen Deneng at UBS Wealth Management's investment director's office.
He forecast the Asia’s currencies would strengthen again after the coronavirus is brought under control before the second quarter of the year.
In the onshore market, the yuan eased after the PBOC cut the benchmark lending rate on Thursday to lower financing costs of businesses and to support the economy. The one-year loan prime rate (LPR) was cut 10 basis points to 4.05 percent and the five-year LPR was lowered by five basis points to 4.75 percent.
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