Ahead of an anticipated interest rate cut from the US Federal Reserve this week, the offshore yuan strengthened past a rate of 7.1 against the US dollar for the first time in nearly a year – another milestone reached in a gradual shift of China’s monetary policy that has seen the currency gain ground over the last month.
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On Wednesday morning, the offshore yuan reached 7.0999 per US dollar, its strongest showing since November. It was trading at 7.1027 as of Wednesday afternoon.
The People’s Bank of China set the yuan’s midpoint rate, also known as the fixing rate, at 7.1013 per US dollar on the same day, strengthening from Tuesday’s rate of 7.1027.
The US Federal Reserve is expected to announce a lowering of interest rates during its two-day Federal Open Market Committee meeting, which began on Tuesday in Washington.
Investment banks Barclays, BNP Paribas and Deutsche Bank have forecast a reduction of 0.25 percentage points, while Standard Chartered has projected a deeper cut of 0.5 percentage points that would initiate a rate reduction cycle lasting into next year.
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“The Fed’s easing will undoubtedly give further momentum to the US dollar’s current depreciation trend … and the yuan will, in turn, move towards greater stability and strength,” said Cheng Shi, chief economist and managing director of ICBC International, at a conference in Guangzhou on Monday.