Yuan at 3-1/2-year high as US inflation dims Fed rate hike prospects

According to Business Recorder, the Chinese currency gained on Thursday, reaching 6.74 per dollar in early trade, its firmest level since February 2023. The move followed US consumer price figures that matched forecasts, which eased pressure on the greenback and reduced expectations of a near-term Federal Reserve rate increase. Spot yuan was last quoted at 6.7441 at 0251 GMT, 18 pips stronger than the prior late-session close.

DBS analysts noted that two soft inflation readings back to back could calm worries about inflation spreading beyond the energy segment. The note added that a cooling job market ruled out near-term Fed tightening, and the largest US budget shortfall since March 2021 capped the greenback. Meanwhile the People's Bank of China fixed its midpoint at 6.7888 per dollar, 418 pips softer than Reuters had estimated, suggesting it wants to slow appreciation.

UBS analysts said autumn export flows as September nears could support the offshore yuan, though any gain depends on the PBOC midpoint. The yuan has advanced 0.6% versus the dollar this month and 3.7% so far this year, while the offshore rate stood at 6.745 per dollar and the dollar index held at 100. The PBOC said Wednesday that overnight reverse repos, worth up to 600 billion yuan ($88.98 billion) a day, will run on August 14 and August 17-19 to adjust cash conditions.