Yuan gains as markets weigh China inflation, await US CPI

SHANGHAI - China's currency, the yuan, edged slightly higher against the US dollar on Wednesday as traders scrutinized conflicting inflation data and anticipated the release of US consumer price figures later in the day. Chinese producer prices surged at their highest rate in over four years in September, while consumer inflation lagged behind expectations.

Rising oil and commodity prices inflated factory-gate costs, while subdued domestic demand prevented a broader price surge. The yuan's spot rate began at 6.6935 per dollar and traded around 6.6919 by 0304 GMT, marking a 9-pip improvement from the previous day's close.

The US dollar appeared to weaken throughout the day, falling from an 18-month peak reached earlier in the week, as oil prices declined and investors reevaluated the AI-driven surge that had bolstered demand for US assets. Prior to the market's opening, the People's Bank of China set the midpoint rate at 6.7249 per dollar, which was 327 pips lower than a Reuters estimate. The yuan is permitted to fluctuate 2% above or below this midpoint daily.

Analysts from China Securities foresee the yuan continuing its gradual appreciation throughout 2026, projecting a year-end rate between 6.6 and 6.7 per dollar. This month, the yuan has appreciated 0.2% against the dollar and 4.5% year-to-date. They noted that the US dollar cycle and cross-border capital flows would continue to influence short-term yuan movements. However, the yuan could experience technical consolidation in the near term, especially if the daily fixing's strength stalls.

Meanwhile, the offshore yuan traded at 6.6923 per dollar, a 0.02% increase in Asian trade. The dollar index, representing the greenback's value against a basket of six currencies, declined by 0.08% to 102.10.