China yuan hovers around 10-month high ahead of Fed decision, Powell remarks

SHANGHAI: China’s yuan hovered around a 10-month high against the dollar on Wednesday, reflecting broad greenback weakness in global markets as investors largely priced in a Federal Reserve interest rate cut later in the session.

The yuan, like other major Asian currencies, has been buoyed by dovish Fed expectations.

Meanwhile, the People’s Bank of China (PBOC) signalled caution by setting the daily official guidance fix with the smallest strengthening bias in more than two months, a move interpreted by investors as an indication that authorities might not want the yuan to appreciate too rapidly, especially amid domestic economic weakness and US tariff pressures.

“The midpoint signal is very clear that the authorities want gradual and measured pace of yuan appreciation,” said a trader at a Chinese bank.

Prior to the market opening, the PBOC set the midpoint rate at 7.1013 per dollar, just 8 pips firmer than a Reuters’ estimate of 7.1021. The gap was the smallest since July 1.

The PBOC has persistently set firmer-than-expected midpoint rates since November, in what market participants viewed as an attempt to keep the yuan stable. The spot yuan is allowed to trade up to 2% on either side of the fixed midpoint each day.

The onshore yuan strengthened to a high of 7.1062 per dollar at one point, the strongest level since November 5, 2024, before easing to 7.1079 as of 0354 GMT.

Its offshore counterpart stood at 7.1040 per dollar.

Market participants have geared up for a near-certain Fed rate cut, and they will also closely scrutinise remarks from Chair Jerome Powell for clues on the US central bank’s monetary trajectory, which will affect the dollar’s movements and other major currencies’ outlook.

“We will focus on the dollar’s performance after the Fed rate cut,” said Wang Qing, chief macroeconomic analyst at Golden Credit Rating International.

“As the Fed resumes rate cuts and the impact of the Trump administration’s tariff policies on the US economy gradually becomes apparent, the dollar index will continue to face downward pressure. Major non-dollar currencies, including the yuan, will likely appreciate against the dollar.”

Despite China’s recent spate of gloomy domestic data, analysts at Nomura believe the PBOC would be reluctant to follow the Fed in cutting rates this month to avoid a potential stock market bubble as mainland shares continue to rally.