Offshore Yuan Strongest Since 2023

The offshore yuan weakened to around 6.915 on Monday, hitting its lowest level in more than two weeks as escalating Middle East tensions boosted the greenback and weighed on broader risk sentiment. The safe-haven dollar remained strong as the standoff between US President Donald Trump and Iran over the Strait of Hormuz intensified, pushing oil prices higher and further fueled global inflation worries. These in turn raised expectations for tighter monetary policy from major central banks. Last week, the People's Bank of China kept key rates unchanged, reflecting a cautious stance that offered limited near-term support to the currency. Meanwhile, sentiment found some support after officials at the China Development Forum struck a reassuring tone, emphasizing policy stability, further market opening, and support for domestic demand. Authorities also downplayed recent yuan weakness, framing market volatility as largely driven by external shocks rather than underlying economic conditions.

The offshore yuan weakened to 6.89 per dollar on Friday, reversing the previous session’s gains as a stronger greenback weighed on the currency. The US dollar advanced after major central banks warned that the ongoing Middle East conflict could stoke inflation, prompting traders to scale back expectations for a Federal Reserve rate cut this year. In China, the central bank kept key lending rates unchanged for a tenth straight month in March 2026, with the one-year loan prime rate at 3% and the five-year at 3.5%. The cautious stance reflects mounting uncertainties, including surging oil prices driven by Middle East tensions, while China’s lower 2026 growth target of 4.5%–5% has reduced the urgency for monetary easing. Analysts said that higher oil prices could help China exit prolonged deflation, but they emphasized that, with weak demand or reduced industrial overcapacity, manufacturers may still face rising input costs. Despite Friday’s decline, the yuan is still set for weekly gains.

The offshore yuan strengthened to 6.90 per dollar on Thursday, rebounding from the previous session as fading expectations of an imminent rate cut by the People’s Bank of China lent support to the currency. Beijing's rate markets signaled a reduced likelihood of further monetary easing, as recent data suggest a stronger-than-expected start to 2026, alongside a modest rebound in consumer prices and easing factory-gate deflation. At the same time, a sharp surge in global oil prices, driven by escalating conflict in the Middle East, is potentially limiting the scope for aggressive monetary loosening. Investors are adjusting their outlook, with markets now leaning toward a steady or slightly firmer policy stance from the central bank. Attention is now turning to Friday’s announcement of China’s benchmark loan prime rates, where the one-year and five-year tenors are widely expected to remain unchanged at 3.0% and 3.5%, respectively.