Chinese Yuan Hits 2-Yr Low on Renewed COVID Fears

By Ambar Warrick 

Investing.com-- The Chinese yuan sank to a two-year low on Monday after the country introduced new COVID-19 restrictions in Chengdu, while mixed service sector activity and broader strength in the dollar also weighed. 

The yuan fell 0.6% to as low as 6.9390 against the dollar, its weakest level since August 2020.

The government extended a lockdown in Chengdu, following a series of COVID outbreaks in the city. With movement curbs also continuing in Shenzhen, traders grew concerned over more disruptions to economic activity. 

The new lockdowns come after data last week showed that China’s manufacturing sector shrank for a second consecutive month in August.

A private survey by Caixin showed on Monday that the Chinese services purchasing managers index (PMI) read 55 in August, more than analyst expectations of 54. But the reading fell from July’s print of 55.5.

The reading brewed some concerns that a recovery in the services sector may be stalling. China’s massive service industry is a main driver of economic growth, and has accounted for a bulk of China’s GDP this year. 

Official PMI data last week also showed that China’s non-manufacturing industries grew at a slower pace in August. 

China is struggling to shore up economic growth, which has been marred by a series of strict COVID-19 lockdowns this year. Beijing is still reluctant to scale back its strict zero-COVID policy. 

The People’s Bank of China had last month cut lending rates, which weighed on the yuan. The government also announced a slew of stimulus measures to increase spending and drive growth. 

Further pressuring the yuan was strength in the dollar, which hit a 20-year high on Monday. Expectations of more interest rate hikes by the Federal Reserve have driven capital out of most risk-driven assets.