China's yuan dips as seasonal FX demand picks up, Mideast tensions remain in focus

SHANGHAI: China’s yuan eased slightly against the dollar on Thursday as seasonal corporate demand for foreign exchange began to take hold and investors continued to digest a surge in US consumer inflation data for May.

 Developments in the Middle East also remained a key market focus as the United States launched new strikes against multiple targets overnight in Iran and President Donald Trump vowed even more attacks if no peace deal is secured.

 The onshore yuan traded at 6.7766 per dollar as of 0246 GMT, slightly weaker than the previous close of 6.7738. Its offshore counterpart last fetched 6.7782.

 Currency traders said they were carefully monitoring US consumer inflation data for clues on the Federal Reserve’s monetary policy trajectory.

 US consumer inflation increased at its fastest in three years in May, boosted by surging prices for energy products amid the Middle East conflict and reducing the chances of the Fed raising rates this year.

 The slight weakness in the yuan also came as seasonal foreign exchange demand has gradually picked up, currency traders said, with overseas-listed Chinese companies needing to make dividend payments to their overseas shareholders.

Such companies typically need to buy more foreign exchange between May and August every year for dividend payouts. Such conversions usually create some downside pressure on the yuan.

 “We do not expect this year’s dividend season to have a significant impact on the currency … China has been attracting capital inflows, which will easily offset any dividend outflows,” said Khoon Goh, head of Asia research at ANZ.

 Before the market opened, the People’s Bank of China (PBOC) set the midpoint rate at 6.8150 per dollar, 331 pips weaker than a Reuters estimate of 6.7819. Spot yuan is allowed to trade 2% either side of a fixed midpoint each day.

The central bank has set softer-than-expected midpoint fixings since November 2025, a move widely interpreted by market participants as an effort to maintain stability and prevent excess increases in the yuan.

 “The central bank appears comfortable with orderly and gradual yuan appreciation against the dollar, with a pace around 4% annualized likely fast enough to offset carry costs for foreign investors but slow enough to keep the drag on export competitiveness and inflation limited,” Goldman Sachs analysts Xinquan Chen and Danny Suwanapruti said in a note.

 The yuan has gained more than 3% on the dollar this year to become one of the best-performing currencies in emerging markets.

 Based on Thursday’s official midpoint guidance fix, the yuan’s trade-weighted value against its major trading partners, as measured by the CFETS yuan basket index, rose to 101.63, up 3.7% year-to-date, according to Reuters calculations based on official data.

 “China is out of deflation, capital inflows are returning, and there is scope for increased exporter conversion and repatriation flows to drive the yuan stronger,” ANZ’s Goh said.

“The risk to our view is if the authorities start to lean against currency strength,” he said, revising the bank’s year-end forecast for the yuan to 6.60 per dollar from 6.70 previously.