Yuan Drops after China GDP Data Marks 28-year Low

The Chinese yuan stumbled on Monday after 2018 growth of the world’s second largest economy declined to the lowest in nearly three decades.

The US dollar gained 0.2 percent to 6.7965 against the yuan after figures from the National Bureau of Statistics (NBS) showed on Monday that China’s fourth-quarter gross domestic product (GDP) contracted to 6.4 percent from 6.5 percent in the previous quarter as expected.

That brought full-year growth down to 6.6 percent, the slowest annual pace since 1990, but it was also in line with forecasts.

With support measures not likely to take effect right away, several analysts see the situation deteriorating further before improving, estimating a 6.3 percent fall this year.

Some China spectators believe actual expansion is already weaker than official data suggest.

The People’s Bank of China (PBOC) set the yuan reference rate at 6.7774 against Friday’s fix of 6.7665.

The Australian dollar, often seen as a proxy to China-related trades, shrank 0.1 percent to 0.7155 against its US counterpart. Australia is due to release its latest job report on Thursday.

Analysts warned that any sharp decline in demand from Australia’s major trading partner would have a negative impact in local assets.

Dollar Gains despite Weak China GDP Report

China’s 28-year low GDP data did not have much of an impact on risk appetite, with the US dollar index climbing 0.04 percent to $96.028 after rising $96.394 on Friday to mark its highest since January 4.

Expectations of easing US-China trade tensions, a more dovish tone from the Federal Reserve, and hopes that Britain could have an orderly exit from the European Union have helped the return of investor risk appetite, which took a breather in December as global stock markets plummeted.

Along with weakening Treasury yields earlier in the month which accompanied the shortcomings in stocks, the dollar index hit a three-month low close to $95.00 on January 10.

US markets will be closed for a long holiday weekend today, while the ongoing government shutdown continues to impede some major US economic reports.

The trade war between the world’s two superpowers is expected to remain in focus this month. Chinese Vice Premier Liu He is scheduled to visit the US on January 30 and 31 for new round of trade negotiations.

US Treasury Secretary Treasury Steven Mnuchin on Friday was reportedly considering lifting some tariffs on Chinese imports. The news was later denied by President Donald Trump, who then announced that there have been developments on the trade agreement with China.

Trump stated on Saturday that things were going very well with China and with trade.

The dollar slipped 0.07 percent to 109.67 against the Japanese yen, having hit a three-week high of 109.895 on Friday. The greenback had added more than 1 percent against the safe-haven currency last week.

The Bank of Japan (BOJ) is set to announce its benchmark interest rate and release a rate statement on Wednesday, although no significant monetary policy changes are expected.

Pound Weaker ahead of May’s Brexit Plan B Reveal

Elsewhere, the British pound fell against the US dollar as UK Prime Minister Theresa May is due to present her Plan B for Brexit in parliament later in the day, following the sound defeat of her initial Brexit plan last week.

Lawmakers will put forward alternatives in the following week. They will debate these plans on January 29, and voting on them should suggest whether any could receive majority support.

The sterling was last down 0.2 percent to 1.2835 against the dollar. The British currency surged to a two-month high of 1.3001 on Thursday, driven by hopes for the UK leaving the European Union (EU) with a firm deal.

The euro was up 0.1 percent to 1.1374 against the dollar, but remained near its two-week low of 1.1353 booked on Friday.

FSMSmart Review