China’s already fragile economic recovery from the pandemic is facing a new challenge – a relentless rally in the US dollar. The US currency’s surge is helping the yuan record its largest gain in eight months on a trade-weighted basis in September, a Bloomberg replica of the official CFETS RMB Index shows. The gauge that tracks China’s currency versus 24 peers indicates the others weakened more versus the dollar than the tightly-managed yuan.
The yuan’s advance versus peers risks hurting the competitiveness of Chinese goods in global markets, according to HSBC Bank Plc, although demand for exports remains resilient for now. It adds to headwinds for the world’s second-largest economy already slowing due to a resurgence in Covid cases, a power crisis and regulatory curbs.
“Higher dollar index will make the CFETS basket passively stronger and hence hurt China’s export competitiveness, as well as make yuan bonds less…

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