USDCNH Analysis – 5-June-2024

The offshore yuan has weakened past 7.25 per dollar (USD/CNH), indicating market concerns despite stronger-than-expected services activity data from China. A recent private survey showed that China’s services sector expanded to 54 in May 2024, up from 52.5 in April.

This surpassed market estimates 52.6 and marked the 17th consecutive month of growth, signaling the fastest pace since July 2023. This growth reflects a robust service sector performance, which is crucial for China’s economic health.

Non-Manufacturing PMI Slows in May

However, not all data was positive. The official non-manufacturing PMI came in at 51.1, below market forecasts of 51.5 and down from April’s 51.2. This suggests a slower expansion rate and has raised concerns among investors. UBS analysts noted that small and medium-sized enterprises outperform larger companies, indicating a mixed performance across different business sizes.

Analysts Await China’s Trade Data

These mixed signals have led to a cautious outlook among analysts. Many believe that China’s economic recovery remains uneven, adding to the uncertainty about the future. Investors are now keenly awaiting the release of China’s trade figures, which is expected on Friday, to gain further insights into the country’s economic trajectory.

Summary

In summary, while there are positive signs in China’s services sector, the overall economic recovery appears inconsistent. This has led to a cautious market sentiment, as reflected in the weakening of the offshore yuan.

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