Rising LIBOR Pressuring Yuan
The U.S. dollar and U.S. dollar interest rates are the first movers, driving the market.
A surge in the U.S. borrowing benchmark to a seven-year high is making it more expensive for Chinese companies to service $585 billion of dollar debt, encouraging firms to pay back their overseas loans and adding to pressure for the yuan to weaken.
Libor has climbed as reforms to money-market funds reduced demand for short-term debt. With traders seeing above even odds for the Federal Reserve to increase borrowing costs this year, the rate is likely to remain elevated. The three-month rate will end the year at 0.85 percent and 2017 at 1.38 percent, compared with 0.84 percent on Friday, according to the median estimates in Bloomberg surveys of analysts.
“Chinese corporates’ dollar debt is mostly based on Libor, so when Libor rises, foreign-exchange pressure will increase,” said Ming Ming, head of fixed-income research at Citic Securities Co., who used to work in the monetary policy division of the People’s Bank of China.