China’s yuan eases from 10-month high, awaits Fed signals for dollar direction

HONG KONG: China’s yuan edged lower against the US dollar on Friday as traders looked ahead to next week’s Federal Reserve meeting, which is expected to usher in an interest rate cut and possibly provide some clues on the outlook for further policy easing.

By 0421 GMT, the yuan was 0.05% lower at 7.1219 to the dollar after trading in a range of 7.1179 to 7.1225.

The modest decline comes after the onshore yuan rose to its strongest level since November 5, 2024 in the previous session, underpinned by Fed rate-cut expectations.

The dollar weakened against major currencies in Asian trade on Friday after a two-day winning streak, but most of the moves in the currency market have been relatively small as traders were reluctant to make big bets ahead of next week’s Fed meeting.

“Eyes are on the Fed’s decision next week and their projections that will be released and how much the easing narrative can be shifted,” MayBank analysts said in a note to clients.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.1019 per dollar, 62 pips firmer than a Reuters’ estimate.

The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

MayBank analysts believe the Chinese central bank continues to slow the pace of yuan appreciation amid speculation it could head towards the 7.0 level.

A too-strong yuan currency could act to tighten financial conditions at a time when China’s economy faces demand pressure both at home and overseas.

DBS analysts said the rallying mainland A-share market is also fueling demand for yuan.

The yuan is up 0.1% against the dollar this month, and 2.5% firmer this year.

The offshore yuan traded at 7.119 yuan per dollar, down about 0.07% in Asian trade.