Offshore Yuan Strongest Since 2023

The offshore yuan strengthened to around 6.72 per dollar on Thursday, extending overnight gains and reaching its strongest level since February 2023, as persistent weakness in the US dollar continued to support Asian currencies. 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. However, gains in the yuan were tempered by a softer-than-expected fixing, with the PBOC setting the daily midpoint at 6.7808 per dollar, signaling authorities' continued preference for a measured pace of currency appreciation. 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 3.0%, while the five-year LPR remained at 3.5%, reflecting policymakers' cautious approach amid lingering domestic and external uncertainties.

The offshore yuan rose to around 6.73 per dollar on Wednesday, rebounding from the previous session as a weaker US dollar and a strong official fixing provided support. The greenback came under pressure after US 30-year Treasury yields climbed to their highest level since 2007 overnight, fueled by concerns over rising government debt, persistent inflation risks, and geopolitical tensions. Further underpinning the yuan, the People's Bank of China set the daily midpoint at 6.7854 per dollar, its strongest fixing since February 8, 2023. However, the fixing remained 433 pips weaker than Reuters' estimate, suggesting Beijing continues to tolerate a measured pace of yuan appreciation. Meanwhile, Premier Li Qiang pledged to accelerate the transition toward new growth drivers, placing greater emphasis on large-scale initiatives such as the "Six Networks" program. Attention is now turning to the National People's Congress Standing Committee meeting on August 25–28 for potential policy signals.

The Chinese Yuan touched 6.74 against the USD, the highest since February 2023. Over the past 4 weeks, US Dollar Chinese Yuan lost 0.41%, and in the last 12 months, it decreased 6.22%.