Yuan slips on soft inflation, defying firmer central bank guidance

SHANGHAI: China’s yuan slipped against the dollar on Wednesday, defying the central bank’s firmest daily guidance in three years, as softer-than-expected consumer inflation and a reaffirmed loose policy stance kept easing expectations in play.

Consumer prices slowed and factory deflation persisted in January, reinforcing market calls for more policy measures to address the mismatch between supply and demand.

The spot yuan opened at 6.9120 per dollar and was last trading at 6.9154 as of 0157 GMT, 14 pips lower than the previous late session close.

The PBOC said on Tuesday that it would continue implementing a “moderately loose” monetary policy, prioritising stable growth and reasonable price recovery, and keeping the yuan basically stable at reasonable and balanced levels.

Ten-year bond futures due in March rose to the highest level since Nov 6, 2025.

 Kiyong Seong, head of Asia Macro Strategy at Societe Generale, said China’s 10-year government bond yield could drop toward 1.6% from the current 1.79%, but urged investors to watch for any shift in the PBOC’s policy stance.

The dollar index, which measures the greenback against a basket of six currencies, was 0.123% lower at 96.8.

The offshore yuan traded at 6.914 yuan per dollar, down about 0.01% in Asian trade.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 6.9438 per dollar, its strongest since May 11, 2023, but 329 pips weaker than a Reuters’ estimate.

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

The central bank has continued its practice since November of lifting its official guidance, but to a level weaker than market projections, in what participants interpreted as an attempt to allow steady and measured appreciation in the yuan.

The yuan had surged to its strongest in nearly three years against the dollar on Tuesday, underpinned by heavy corporate demand for the local currency ahead of China’s biggest holiday.

Companies, particularly exporters, typically need yuan ahead of the long Lunar New Year holiday to meet various obligations such as employee wages, supplier payments and bonuses.

The week-long holiday runs from February 15 to 23 this year.