Forex - Yuan, Yen Hold Steady

© Reuters. The Chinese yuan continued to stabilize Friday morning

Investing.com – The Chinese yuan continued to stabilize Friday morning as economic news out of Europe and Japan suggested that some of the volatility of recent months may be levelling off, but risk is not far off.

The dollar gained some ground against the Chinese yuan on Friday morning. The USD/CNY pair was up 0.06% to 6.8489 at 10:46 PM ET (GMT 02:46).

On Friday, the People’s Bank of China (PBOC) set the reference rate for the yuan at 6.8362, stronger than the 6.8488 rate on Thursday. China’s industrial output rose 6.1% in August, beating estimates of a 6% increase.

The yuan has been sliding against the US dollar since April and has lost more than 9% since then. It has gained some ground over the past couple of days, the PBOC set the reference rate stronger two days in a row, after reports that talks on trade between the U.S. and China may resume.

U.S. Treasury Secretary Steven Mnuchin is reportedly working to meet with China’s top economic office Liu He. U.S. President Donald Trump tweeted on Thursday that the pressure is on China but the prospects of talks calmed markets.

The US Dollar Index was up 0.01% to 94.53 in morning trade in Asia, holding steady after falling during the day session in North America.

Still, the yuan faces myriad risks in the months ahead. Speaking on Thursday in Hong Kong, Chris Wood, the chief equity strategy at brokerage and investment firm CLSA, said a sudden shift in the geopolitical climate could push the yuan past the 7 mark and that would force the PBOC to take steps.

Despite the risks, however, bearish bets on the yuan have slowed down. According to the Depository Trust & Clearing Corp., the value of options on the yuan weakening past the 7 mark fell last week to the lowers in two months, Bloomberg reported.

The Japanese yen was holding flat against the dollar after having lost ground overnight. The USD/CNY pair was down 0.01% to 111.91. The dollar jumped against the yen overnight. On Thursday, the pair was trading at 111.35.

The yen is getting some support from some relatively positive economic news. On Friday, the Japanese government maintained its assessment that the economy is recovering at a moderate pace but noted that capital expenditures are rising, which should push economic growth. The risk of a trade war between the U.S. and China could slow growth down in Japan, however.

The Australian dollar lost some ground against the greenback on Friday morning. The AUD/USD was down 0.08% to 0.7189.

On Thursday, the European Central Bank kept rates steady and announced plans to end bond purchases at the end of this year while keeping interest rates low. The bank sees inflation rebounding and economic growth stable but leveling off.