China's yuan weakens to two-week low on broad dollar strength

SHANGHAI: China's yuan weakened to a two-week low against the dollar on Tuesday, pressured by broad greenback strength in global markets as traders reduced bets on Federal Reserve interest rate cuts.

The US dollar hovered near a three-month high against its peers, with a divergence in views from Fed officials clouding the outlook for a rate reduction in December.

The onshore and offshore yuan both weakened in reaction to the dollar rally. The onshore yuan hit a trough of 7.1270 per dollar, the weakest level since October 22. As of 0406 GMT, the spot rate stood at 7.1252.

Its offshore counterpart fell to 7.13 per dollar for the first time since October 17 before trading at 7.1287 as of 0406 GMT.

"(The) US government shutdown and lagging data could complicate the pace of monetary easing in the United States and affect the yuan," said a trader at a foreign bank.

Fed officials continued offering competing views of where the economy stands and the risks facing it in the absence of economic data suspended due to the federal government shutdown.

Traders are now pricing in a 65 per cent chance of a rate cut in December, compared with 94 per cent a week earlier, CME FedWatch showed.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 7.0885 per dollar, 341 pips firmer than a Reuters estimate of 7.1226. The spot yuan is allowed to trade a maximum of 2 per cent on either side of the fixed midpoint each day.

Separately, currency traders said they will shift their attention to Chinese economic data after October manufacturing activity data pointed to signs of a slowdown in the broader economy.

"Economic indicators seem set to slow down in October due to a higher base and the calendar effect as well as weaker momentum," Citi analysts said in a note.

China is due to release trade data on Friday and inflation figures on Sunday. Credit lending and activity indicators are scheduled for next week.

Read More: Here