Yuan Weakens as Dollar Holds Near Two-Week High Amid Fed Fears

The Chinese yuan slipped on Tuesday despite the People's Bank of China (PBOC) setting its strongest daily reference rate since February 3rd, 2023. The PBOC fixed the yuan at 6.7670 per dollar, which is significantly weaker than a Reuters estimate of where the midpoint 'should' have landed.

This suggests that officials are less interested in encouraging a stronger yuan. China runs a managed currency system, where the spot rate is allowed to move up to 2% above or below the daily reference rate during the day. The PBOC's caution makes sense given the push and pull on the exchange rate.

The dollar has been holding near a two-week high as US Treasury yields rose, and markets are bracing for the next Federal Reserve decision. China's latest releases still point to soft consumption and weak investment, which keeps expectations tilted toward supportive credit conditions and low interest rates.