Offshore Yuan Holds Near 1-Month Low

The offshore yuan steadied around 6.81 per dollar on Thursday, hovering near a one-month low after the People’s Bank of China unveiled plans to introduce overnight reverse repo operations as part of its next phase of monetary policy reform. The central bank said it will conduct overnight reverse repurchase operations on June 29–30, providing fixed-rate overnight liquidity to better address short-term funding needs in the banking system. The new overnight reverse repo rate will complement the existing seven-day rate of 1.4%, bringing the PBOC’s policy toolkit closer in line with major global central banks such as the Federal Reserve. During the Lujiazui Forum, Governor Pan Gongsheng outlined the central bank’s plans to broaden overnight reverse repo operations. Externally, the yuan remained under pressure from a stronger US dollar amid growing market expectations of further Federal Reserve interest rate hikes later this year.

The offshore yuan depreciated to around 6.80 per dollar on Wednesday, hitting its lowest level in a month, as a stronger US dollar continued to weigh on the currency. The greenback remained supported by mounting expectations that the Federal Reserve could raise interest rates in September, with markets now assigning roughly a 70% chance of a rate hike. Further pressure came from the People's Bank of China, which continued to set the yuan's daily reference rate at weaker-than-expected levels. The central bank fixed the currency at 6.8195 per dollar on Wednesday, extending its longest streak of weaker fixings since April 2025. Meanwhile, China has effectively halted certain tungsten exports to Japan, while rare-earth magnet shipments fell to a one-year low in May, when Beijing first rolled out its global export-control regime. Such restrictions have remained in place amid tensions over Taiwan-related remarks by Japanese Prime Minister Sanae Takaichi.

The offshore yuan traded around 6.78 per dollar on Tuesday, hovering near a two-week low as US dollar strength weighed on the currency. The greenback gained traction as investors positioned for the possibility of additional Fed rate hikes later this year following the central bank's recent hawkish remarks. In China, the PBoC kept its one-year loan prime rate (LPR) at 3% and its five-year LPR at 3.5% for a thirteenth consecutive month, highlighting policymakers' cautious approach to supporting growth while preserving financial stability. Adding to downward pressure on the yuan, the PBoC continued to set the daily reference rate at weaker-than-expected levels, signaling a tolerance for a softer currency. The central bank set the midpoint fixing at 6.8171 per dollar, the weakest level since June 8. Seasonal foreign-exchange demand has also weighed on the currency, as Hong Kong-listed Chinese firms are expected to ramp up dividend payouts in June, increasing demand for foreign currencies.