FX.co ★ Offshore Yuan Gains on Dollar Weakness

On Friday, the offshore yuan inched higher to approximately 7.13 against the dollar, aided by a weakening U.S. dollar as anticipation builds for the August jobs report. This report is likely to reinforce expectations of a Federal Reserve interest rate cut later this month. Recent data from ADP indicates a softening in the U.S. labor market, leading markets to fully anticipate a 25 basis points reduction in September. Domestically, China’s investors are keenly awaiting the release of trade and inflation data next week for additional insights into the nation's economic trajectory. In terms of monetary policy, China’s central bank plans to execute a CNY 1 trillion outright reverse repo operation on September 5, 2025, to ensure sufficient liquidity within the banking system. Nonetheless, the yuan’s gains faced pressure from external challenges, particularly after Mexico announced it is contemplating tariffs on imports from nations that lack trade agreements, with China being a significant concern under its "Plan Mexico." Despite Friday’s modest rise, the yuan is poised to record a weekly decline, thus ending a two-week period of significant gains.