PBOC yuan fixing misses estimates by 332 pips as easing bets cool

The People's Bank of China set the yuan fixing 332 pips weaker than market projections Thursday, the largest downside deviation since June 23, as it showed tolerance for a slower pace of yuan appreciation.

"At this point, the slow decline in the daily fixing reflects more of a return to a comfortable position rather than a push for a stronger currency," said Eugenia Victorino, head of Asia strategy at SEB. "So long as the RMB index does not gain too much ground from here, the PBoC is likely to tolerate a resilient yuan."

The onshore yuan slipped to 6.7703 per dollar, retreating from a one-month high of 6.7635 hit a day earlier, while its offshore counterpart traded at 6.7714. The central bank set the midpoint at 6.7909 per dollar — a more than three-year high and 1 pip firmer than the previous 6.7909 — but 332 pips softer than the Reuters estimate of 6.7577. The yuan has strengthened 3.2 percent against the dollar this year, while the trade-weighted CFETS RMB Index gained 4.5 percent over the same period, according to Reuters calculations based on official data.

The widening gap between the official fixing and market projections suggests Beijing is managing the yuan's ascent to avoid hurting export competitiveness, even as a weaker dollar and cooling US producer prices support the currency. With the Politburo meeting approaching, markets expect policymakers to maintain targeted support rather than broad-based easing, limiting the scope for further yuan gains.

Fixing Gap Widens to 332 Pips

The PBOC has been setting a weaker-than-expected midpoint guidance rate since November 2025, a move investors interpreted as an attempt to keep the market stable and prevent excess yuan gains. Thursday's deviation of 332 pips — the largest weaker-side miss since June 23 — marks an acceleration of that trend. The last time the PBOC allowed such a wide gap was in late June, when the fixing came in 340 pips softer than estimates, preceding a period of yuan consolidation around the 6.77 level.

The central bank also injected 450.5 billion yuan via seven-day reverse repurchase agreements at an unchanged rate of 1.4 percent, indicating no urgency to ease monetary conditions despite the softer economic data. The PBOC allows the yuan to fluctuate within a plus or minus 2 percent range around the daily fixing.

Escalating US-Iran hostilities kept oil prices near one-month highs, while the dollar hovered near a one-month low after cooling US producer price data. The combination of geopolitical risk and a softer greenback has created opposing forces for the yuan, with the energy import bill rising just as export competitiveness becomes a policy priority.

Politburo Meeting in Focus

Investors are turning their attention to the upcoming Politburo meeting, where policymakers are expected to set the economic policy agenda for the second half of the year. Markets largely view the recent softer-than-expected second-quarter economic data as insufficient to prompt broad-based policy easing.

"Beijing appears to be managing a controlled correction in excess sectors while continuing to support tech," said Wei Yao, global chief economist at Societe Generale. "At times, policymakers may top up support for consumption and infrastructure, but that is likely the extent of easing, consistent with recent policy signals. As such, we expect little from the July Politburo meeting."

Looking into the second half of the year, analysts at J.P. Morgan said the near-term swing in the yuan will hinge on the interaction between export performance, the energy import bill, and trade-policy headlines. "A firmer USD and a more hawkish Fed tilt could slow the pace of CNY appreciation, particularly given policy divergence with the PBOC, even if US-China rate differentials now play a less reliable role in explaining CNY moves than they do for other currencies," they said.

The yuan's trajectory in the coming months will depend on whether the PBOC maintains its current fixing strategy or allows the currency to resume its appreciation trend. If the dollar continues to weaken on expectations of Fed rate cuts, the PBOC may face increasing pressure to let the yuan rise, potentially narrowing the fixing gap. Conversely, a renewed escalation in trade tensions or a spike in energy prices could give Beijing cover to keep the fixing weak.

This article is for informational purposes only and does not constitute investment advice.