Chinese Yuan Strengthens in Volatile Trading After US Inflation Report

The Chinese yuan strengthened against the U.S. dollar on Friday, showing resilience in a volatile session after a surprise in U.S. inflation data boosted the case for a Federal Reserve interest rate hike next week.

Volatility Follows CPI Data

Immediately following the release of the U.S. core consumer price index (CPI) data, the yuan initially weakened before reversing course. The move defied a broader dollar rally that typically follows data supporting tighter monetary policy.

• The offshore yuan (USD/CNH), after first rising to 6.7148, fell as much as 0.1% to 6.7060.
• The onshore yuan (USD/CNY) declined 0.1% to 6.7055, after an initial climb to 6.7138.
• The Hong Kong dollar (USD/HKD) remained stable at 7.8424.

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Market Impact and Outlook

The stronger-than-anticipated U.S. inflation figures have solidified investor expectations for the Federal Reserve to raise interest rates at its upcoming meeting. Higher U.S. rates typically attract capital and strengthen the dollar, putting pressure on other currencies.

Despite this, some analysts believe the yuan will remain relatively stable. Zhaopeng Xing, a senior China strategist at Australia & New Zealand Banking Group, said before Friday's data that if the Fed raises rates, the yuan may stabilize around the 6.70 level. Elias Haddad, global head of market strategy at Brown Brothers Harriman, commented that the Chinese currency will remain "largely unaffected by the Fed decision, aside from a short-term blip."