Offshore Yuan Snaps 4-Session Gains

The offshore yuan weakened to around 6.85 per dollar on Friday, snapping a four-session rally and retreating from a more than two-year high reached in the previous session, after the People's Bank of China adjusted policy settings to lower the cost of dollar forwards. The central bank announced it would slash the foreign-exchange risk reserve requirement ratio to zero from 20%, starting March 2. The latest move marks a shift from a September 2022 decision, when the PBOC raised the ratio to stem sharp yuan depreciation and curb capital outflows. Further weighing on the yuan were continued efforts by the PBOC to temper the currency’s rapid appreciation. The central bank set the daily midpoint fixing at 6.9228 per dollar, 800 pips weaker than Reuters’ estimate, marking the largest deviation on record. Despite Friday’s pullback, the offshore yuan remains on track for its strongest weekly performance since April 2023.

The offshore yuan strengthened to around 6.83 per dollar on Thursday, extending its rally to a fourth straight session and reaching a new high since April 2023, as the greenback remained on the back foot. The US dollar stayed under pressure amid lingering uncertainty over Washington’s tariff policies, which has weighed on confidence in the world’s primary reserve currency. Adding to the cautious market mood, US and Iranian negotiators were set to meet in Geneva later in the day for another round of nuclear talks, an event closely watched by global investors. The yuan’s advance came despite a markedly weaker-than-expected official fixing, seen as an effort to temper the currency’s rapid appreciation. The People's Bank of China set the midpoint rate at 6.9228 per dollar, 623 pips weaker than Reuters’ estimate and the largest deviation on record. Investors are now turning their attention to next week's PMI data, which could provide insights into the strength of China’s economic health.

The Chinese Yuan touched 6.85 against the USD, the highest since April 2023. Over the past 4 weeks, US Dollar Chinese Yuan lost 1.18%, and in the last 12 months, it decreased 6.16%.