Volatile currency and other risks in China
2023.01.10 07:10
Volatile currency and other risks in China
By Kristina Sobol
Budrigannews.com – After more than a week of strong gains by the yuan, three state financial newspapers in Shanghai and Beijing advised investors in front-page commentaries on Tuesday to avoid Chinese currency risk and adapt to higher foreign exchange volatility.
They warned that even though the currency has improved, it will be volatile in both directions this year.
It was almost certain that the government had instructed the newspapers to convey the same information on the same day and on their front pages.
This year, the yuan has increased by 2.2% against the dollar. On Tuesday, it reached a level that was almost five months old, reversing much of 2022’s annual loss, which was the largest in 28 years. The currency has been driven by optimism regarding economic recovery following the country’s end of pandemic controls in late November and early December.
According to the Securities Times, “Even if the depreciation pressure has diminished, two-way volatility in the yuan exchange rate will still be the norm in 2023.”
It warned that “the continuing depreciation pressure on the yuan will be added by the shrinking current account surplus and yield gap between China and the United States.”
The two other Beijing-based newspapers urged foreign exchange investors to adopt risk neutrality.
Since higher U.S. yields attracted money to dollar-denominated assets, the Federal Reserve’s raising of interest rates and the resulting strength of the dollar were key factors weighing on the yuan in 2022.
Most people in the market think that the US central bank will keep raising interest rates at its upcoming meetings until it is sure that inflation has reached its peak.
According to the Beijing-based China Securities Journal, the most important factor in determining the value of the yuan is still improvements in China’s economic expectations.
The newspaper stated, “The yuan will likely continue to be subject to two-way volatility after a reasonable correction, gradually converging towards a reasonable range in the long run.”
According to Shanghai Securities News, domestic factors would dominate the yuan’s value this year. The focus would shift to the rate of fundamental economic improvement.
Recent economic indicators, such as factory activity in December, have suggested that an increase in COVID-19 infections as a result of the lifting of social restrictions disrupted production in December and impacted demand.
More Powell to determine further movement of dollar
Numerous investment banks, including JPMorgan (NYSE:) and Nomura, have lowered their estimates of the fourth-quarter and 2022 gross domestic product of China.
