The Chinese yuan is weakening against its US and European counterparts to kick off the trading week. The yuan is struggling as the country faces the worst series of public health restrictions since the start of the coronavirus pandemic, a trend that could impact economic growth prospects and add headaches to the global supply chain crisis.
Shanghai announced an immense two-phase lockdown that could trigger immense blows to the local, national, and even global economies. Shanghai contributes 3.8% to the nation’s gross domestic product and is the country’s second-richest city.
“Authorities unveiled a two-stage lockdown in China’s most populous city. The eastern half will be locked down from Monday until Apr. 1, while the western half will be shut down until Apr. 5,” FX Daily Report noted Monday.
China has seen a notable uptick in COVID-19 infections, with new confirmed cases topping 6,000. The rolling seven-day average is also on an upward trajectory.
This comes after several major urban centers, including Shenzhen, also shut down their cities, impacting a wide range of businesses and factories that maintain critical relationships with American and European corporations.
“The lockdown in Shanghai — China’s international financial center and biggest city economically — and the measures leading up to it will have a direct impact on the Chinese economy that is comparable to the Shenzhen episode,” Bloomberg economists Chang Shu and David Qu said in a note. “But the negative hit to sentiment could be greater. So far the lockdown allows for continued operations at financial institutions and ports. Anything beyond the current plan risks disruptions to financial flows and international trade.”
Overall, experts say that if the lockdowns do not last longer than three weeks, the international supply chain fiasco might not be exacerbated.
All eyes will be on the manufacturing and non-manufacturing purchasing managers’ index (PMI) readings this week.
Over the weekend, the National Bureau of Statistics (NBS) reported that year-to-date industrial profits climbed 5% in February, down from 34.3% in the previous month.
The USD/CNY currency pair dipped 0.06% to 6.3704, from an opening of 6.3663, at 13:19 GMT on Monday. The EUR/CNY fell 0.24% to 6.9746, from an opening of 6.9912.