The Chinese yuan rebounded, gaining ground as the US dollar retreated. Traders focused on hopes of an end to the conflict in Eastern Europe.
A path toward a peace agreement could fuel more risk appetite and limit demand for safe-haven assets like the USD.
However, the yuan’s relief could be short-lived as attention could return to inflation data. The latter was hotter than expected yesterday.
As a result, traders could monitor the US PPI data release later today where higher-than-expected figures could weigh on the Chinese currency as the market reassesses US interest rate cuts expectations.
Despite today’s rebound, the yuan remains near a multi-year low and could remain under pressure as Chinese treasury yields stay low and spreads with their US equivalent remain near a historical high. Trade tensions between China and the US and protectionist policies could add to the pressure on the yuan. An escalation of trade tensions could limit the yuan’s recovery potential as traders focus on their impact on the economic outlook.
