Yuan steady near 3-1/2-year high as markets watch for US inflation data

On Wednesday, China's yuan remained near a 3-1/2-year high against the US dollar, as steady official guidance kept the currency anchored ahead of the eagerly awaited US CPI data. The yuan ended flat at 6.7465 to the US dollar, maintaining its strongest level since February 2023. The offshore yuan traded at 6.7479 yuan per dollar, down slightly by about 0.02% in Asian trade.

Global currency markets observers focused on the upcoming release of US inflation data, which could shed light on the Federal Reserve's future policy decisions following weaker-than-expected jobs data last week. This prompted some investors to reduce expectations for further rate hikes. The six-currency index of the US dollar remained relatively unchanged at 99.86.

Analysts from China Construction Bank noted that while the yuan could continue to fluctuate in both directions alongside the greenback this month, given the volatility in the US dollar index, its upside potential for the year is likely to be limited. They also cautioned that rapid recovery in the yuan's valuation could be unrealistic.

Before market opening, the People's Bank of China set the midpoint rate at 6.7882 per dollar, its strongest level since February 8, 2023, though 452 pips lower than a Reuters estimate. The spot yuan is permitted to trade within a 2% range of the fixed midpoint each day. The central bank has been gradually tightening its daily yuan guidance, albeit at levels that are weaker than market expectations, hinting at its intention to manage the pace of appreciation, according to traders and analysts.