FX.co ★ Offshore Yuan Slips on Soft PBOC Fixing

The offshore yuan weakened to around 6.74 per dollar on Thursday, erasing the previous session’s gains after a weaker-than-expected daily fixing by the People’s Bank of China weighed on the currency. The central bank set the midpoint at 6.7888 per dollar, 418 pips below the Reuters consensus estimate. Although seasonal factors linked to the approaching month of September could lend some support to the yuan, the scope for any sustained appreciation will largely hinge on the PBOC’s fixing strategy. The currency’s decline was partly offset by a softer US dollar, as recent inflation data tempered expectations of an imminent Federal Reserve rate hike. In its quarterly monetary policy report, the PBOC reaffirmed its intention to deploy targeted policy measures while refraining from broad-based easing. Separately, the central bank skipped seven-day reverse repos for a third straight day on Thursday, and announced plans to inject up to CNY 600 billion per day via overnight reverse repos on August 14 and August 17–19.