FX.co ★ Offshore Yuan Weakens

The offshore yuan saw a decline, reaching approximately 6.98 against the dollar on Wednesday. This drop was influenced by the People’s Bank of China's dovish outlook and weaker-than-anticipated official guidance. The central bank reiterated its intention to decrease the reserve requirement ratio and interest rates by 2026 to maintain sufficient liquidity, while upholding a “moderately accommodative” monetary policy stance. Concurrently, the PBOC set the yuan’s midpoint at 7.0187 per dollar. This marked the first weaker guidance in four sessions, falling short of what Reuters had projected. This recent adjustment indicates a more cautious strategy regarding currency stabilization. However, the yuan's depreciation was somewhat offset by strong year-end foreign exchange settlements, as exporters converted foreign earnings to fulfill domestic financial commitments, including bonuses ahead of the Lunar New Year. Investors are now directing their attention to China’s upcoming inflation figures due later this week, which may provide further insight into the central bank’s future monetary policy direction.