China's Yuan slips amid caution ahead of global central bank meetings

Yuan dips slightly: China's Yuan experienced a slight decline against the US dollar as investors exercised caution ahead of a busy week of central bank meetings worldwide, anticipating potential fluctuations in currency markets.

The Bank of Japan appears poised to abandon negative interest rates on Tuesday, adding to the anticipation surrounding the Federal Reserve's rate outlook scheduled for Wednesday.

Several other central banks, including those in Britain, Australia, Norway, Switzerland, Mexico, Brazil, and Indonesia are also scheduled to convene, with most expected to maintain current interest rates.

PBOC sets stronger rate

Prior to market opening, the People's Bank of China (PBOC) established the midpoint rate, around which the Yuan trades within a 2 per cent band, at 7.0943 per dollar, slightly stronger than the previous fix of 7.0975.

Despite this guidance, the PBOC persisted in setting rates firmer than market projections, aiming to uphold currency stability, a move widely interpreted by traders.

The spot market saw the onshore Yuan opening at 7.1940 per dollar and trading at 7.1973 at midday, marginally weaker compared to the previous session's close.

Analysts assess exchange stability

Analysts highlighted policymakers' emphasis on maintaining foreign exchange stability, with Goldman Sachs highlighting the negative countercyclical factors in recent Yuan fixings, reflecting a persistent bias towards strengthening despite depreciation pressures due to unfavourable interest rate differentials.

Market sentiment remained focused on the upcoming Federal Reserve decision, with little reaction observed to better-than-expected Chinese economic indicators released earlier in the day, which showed robust factory output and retail sales for the January-February period.

By midday, the global dollar index dipped slightly to 103.421, while the offshore Yuan traded at 7.2032 per dollar, signalling subdued market activity amidst the cautious outlook ahead of central bank announcements.

(With Reuters Inputs)