FX.co ★ Offshore Yuan Falls as PBoC Maintains Weak Fixing

On Wednesday, the offshore yuan declined to approximately 6.96 against the US dollar, reversing a two-day upward trend as the People’s Bank of China (PBoC) maintained a weak daily fixing. The central bank set the reference rate at 7.0014 per dollar, which was lower than predictions by both Reuters and Bloomberg. Authorities are cautious about the potential impacts of a strong yuan, which could pressure exporters, tighten domestic financial conditions, or lead to destabilizing capital movements. In line with this concern, the weaker-than-anticipated fixing followed a consistent pattern observed since early December, highlighting Beijing’s intent to regulate the speed of yuan appreciation amid favorable capital inflows and a weakening US dollar. Investors perceive this strategy as a familiar approach in foreign exchange management, where the authorities allow for currency strength that aligns with macroeconomic fundamentals but resist trades driven by momentum. Regarding monetary policy, the PBoC maintained the one-year and five-year loan prime rates at 3% and 3.5%, respectively, signifying eight months of policy continuity.