Offshore Yuan Edges Lower

The offshore yuan edged lower to around 7.19 per dollar on Wednesday, as investors digested the latest monetary policy announcement from the People’s Bank of China. The central bank held its key lending rates at historic lows for the third straight month at its August fixing, in line with market expectations. The one-year Loan Prime Rate (LPR)—a key benchmark for most household and business loans—remained unchanged at 3%, while the five-year LPR, which influences mortgage rates, was also kept steady at 3.5%. Externally, the yuan’s weakness was partly driven by a stronger US dollar, as markets looked ahead to the Federal Reserve’s annual Jackson Hole symposium later this week. Investors are watching closely for any signs that the Fed might push back against current market expectations of an interest rate cut as early as next month. At present, markets are pricing in an 84% chance of a rate reduction, with approximately 54 bps of easing expected by year-end.