HONG KONG: China’s yuan softened against the US dollar on Wednesday as traders pared back US rate cut expectations after sticky inflation data overnight.

The dollar held firm as a second straight month of stronger-than-expected inflation effectively shut the door on the possibility of a Federal Reserve interest-rate cut before June, and made back-to-back reductions after that look increasingly less likely.

Prior to market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.093 per US dollar, firmer than the previous fix of 7.0963.

The official midpoint was fixed at the strongest level since Jan. 2.

While the central bank intensified the defense of yuan, analysts called for a more aggressive stimulus package from the Chinese government to revive confidence in the world’s second largest economy.

“The drip-feed of modest measures needs to add up to a large enough package to boost growth and confidence dynamics, bringing China out of its visibly entrenched debt-deflation spiral – we are not there yet,” said Lemon Zhang, FX strategist at Barclays.

China’s yuan rises to 1-1/2 month high on dovish Fed bets

The yuan will face headwinds from a carry perspective as long-dated US-China rate differentials should widen, he added.

In the spot market, the onshore yuan opened at 7.1809 per dollar and was changing hands at 7.1876 at midday, 45 pips away from the previous late session close and 1.33% away from the midpoint.

The global dollar index fell to 102.919 from the previous close of 102.957, while the offshore yuan was trading -0.08% away from the onshore spot at 7.1933 per dollar.