Chinese Yuan: Steady appreciation backed by PBoC stance – Societe Generale

Societe Generale analysts report that the Chinese Yuan (CNY) has shown a steady appreciation trend, reaching its strongest level since February 2023 at 6.7424 against the Dollar. This increase is primarily attributed to a weakening Dollar and lower US interest rates. The People's Bank of China (PBoC) has maintained an accommodative monetary policy stance, providing targeted support as needed, without giving any explicit signals of rate or reserve requirement ratio (RRR) cuts.

The 10-year Chinese government bond yield (CGB) has fallen below 1.70% for the first time in a year, following the central bank's first mid-month overnight reverse repo liquidity injection.

The Ministry of Finance successfully sold 50-year special sovereign bonds at an average yield of 2.2831%. Meanwhile, other major currencies are experiencing fluctuations. GBP/USD has gathered momentum, reaching new three-month peaks near the 1.3560 level, after three consecutive daily declines and amid increased selling pressure on the US Dollar.

EUR/USD has also shown a significant uptick, breaching the upper 1.1500 zone for the first time since mid-June, driven by a strong dollar retracement and BoJ intervention speculation. Gold prices rebounded towards the $4,400 mark, reversing a previous day's dip as weakness in the US Dollar prevails and investors weigh easing expectations of an imminent Federal Reserve interest rate hike and developments in the Middle East.

Inflation data for July met expectations with a 0.1% month-over-month increase in headline Consumer Price Index (CPI) and a 0.2% increase excluding food and energy. Despite annual headline inflation remaining high at 3.4%, wage earners continue to face stagnant or reduced spending power, while core inflation remains slightly above the 2% target set by the Federal Reserve.