Offshore Yuan Nears 3-Week Low

The offshore yuan weakened past 6.71 per dollar on Thursday, hitting its lowest level in nearly three weeks, as a firm US dollar and uncertainty over the extension of the US-China trade truce weighed on the currency. The greenback remained supported by rising expectations for further policy tightening, with markets now pricing in around a 70% chance of a Fed rate hike in October, up from 55% a day earlier. Adding to pressure on the yuan, Treasury Secretary Scott Bessent said the US and China had agreed to extend their trade truce by two months, through January 10. However, China has yet to publicly confirm the expiration date, while the extension falls short of the three-to-six-month continuation previously suggested by some US officials. While expectations for the Trump-Xi summit remain subdued, the talks are expected to focus on artificial intelligence, Iran, Taiwan and broader economic ties, as both sides seek to preserve stability in bilateral relations.

The offshore yuan weakened to around 6.70 per dollar on Wednesday, extending losses from the previous session as a firmer US dollar and caution ahead of the highly anticipated Trump-Xi summit weighed on sentiment. The greenback remained supported after hawkish remarks from Federal Reserve officials reinforced expectations of another interest-rate hike later this year. Pressure on the yuan was also driven by subdued optimism surrounding the summit after preliminary talks that held last Sunday failed to produce an agreement to extend the tariff truce due to expire in November. While expectations for a major breakthrough remain limited, the meeting is still expected to address a range of sensitive issues, including artificial intelligence, Iran, Taiwan, and bilateral trade relations. Chinese President Xi Jinping and First Lady Peng Liyuan are scheduled to be welcomed by President Trump on Wednesday evening, marking Xi's first visit to the United States since 2015.

The offshore yuan traded around 6.69 per dollar on Tuesday, remaining close to its strongest level since July 2022 amid growing optimism over US-China talks. US and Chinese officials wrapped up a second day of talks on AI, investment and trade ahead of the Trump-Xi summit in the US on September 23–25. The highly anticipated meeting is expected to cover AI, the Iran conflict, export controls and rare-earth supplies. Investors are also watching for signs that the two countries can extend their trade truce before it expires in November. US Trade Representative Jamieson Greer said the two sides remain divided over the terms of an extension, while indicating that Washington could support a three- to six-month extension. On the monetary policy front, the one-year loan prime rate (LPR) was kept at 3%, while the five-year LPR remained at 3.5%. The decision comes as policymakers face less scope for easing amid the yuan’s continued appreciation and tighter policy among some major central banks.