Offshore Yuan Slips on Stronger Dollar

The offshore yuan rose to around 6.72 per dollar on Monday, rebounding from losses in the previous week even as fresh economic data underscored persistent weakness in the economy. Official PMI data showed the Composite PMI edged up to 49.5 in August from 49.3 in July but remained below the 50-point threshold, signaling a continued decline in overall business activity, with both manufacturing (49.8) and services (49.0) staying in contraction territory. Moreover, industrial profits rose 17.6% year-on-year to CNY 4.58 trillion in the first seven months of 2026, easing from 18.7% in the January–June period. Adding to the pressure, Trump signaled that Chinese banks could face sanctions, while Treasury Secretary Scott Bessent warned that financial institutions facilitating Iranian oil revenues could also be targeted. Reports also said the US was preparing a 7.5% tariff on Chinese goods over alleged industrial overcapacity.

The offshore yuan weakened to around 6.72 per dollar on Wednesday, reversing gains from the previous month, weighed down by a softer-than-expected official fixing. The People’s Bank of China set the yuan’s midpoint at 6.7829 per dollar, 663 pips below the Reuters estimate and marking its largest negative deviation since February. The weaker-than-expected fixing extended a trend seen since November 2025, underscoring the central bank’s efforts to temper the yuan’s recent appreciation while maintaining stability in the currency market. Investors remained focused on escalating US-Iran tensions after Washington expanded sanctions on Iran. Attention also turned to the National People’s Congress Standing Committee meeting, scheduled for August 25–28, with investors looking for fresh policy guidance after a run of disappointing economic data and recent commitments by authorities to bolster growth.

The offshore yuan strengthened to around 6.72 per dollar on Friday, marking its third straight session of gains and reaching its strongest level since January 2023, as persistent weakness in the US dollar continued to support the currency. The greenback remained under pressure as expectations for further Fed rate hikes eased, while the announcement of expanded bond buybacks boosted demand for longer-dated Treasuries and weighed on the dollar. On the monetary policy front, the central bank kept its benchmark lending rates unchanged at record lows for a fifteenth consecutive month. The one-year loan prime rate (LPR) was held at 3%, while the five-year LPR remained at 3.5%, reflecting policymakers' cautious approach amid lingering domestic and external uncertainties. Attention is now turning to the National People's Congress Standing Committee meeting in Beijing on August 25–28, where investors hope for additional policy guidance following a string of weak economic data releases for July.