SHANGHAI: China’s yuan firmed slightly on Wednesday reflecting pressure on the dollar even though it managed to steady a little as financial markets considered whether US rates have peaked.

Sentiment was also aided by a fresh central bank pledge to guard against risks of the yuan overshooting.

The spot yuan was changing hands at roughly 7.2710 at midday, stronger than the previous late session close, after the People’s Bank of China (PBOC) set the midpoint rate steady at 7.1773.

The dollar has been under selling pressure over the past week after the Federal Reserve toned down its hawkish stance at its policy meeting last week, and following a soft US jobs report.

“Our economist … sees no more hikes and cuts from 3Q24 amid a ‘hold for longer’ stance,” Maybank wrote in note to clients, referring to the U.S Fed policy.

“We continue to look to sell the USD on rallies.”

The view was echoed by Hao Hong, economist at GROW Investment Group.

China’s offshore yuan nears one-month high

Yuan’s real effective exchange rate (REER) “has reached its cyclical lows, and the market is starting to price in four Fed cuts in 2024,” he wrote in a report on Wednesday.

“As such, the historic weakness of the CNY should trough, while the yield gap should narrow. Such normalization should alleviate the pressure on fund flows and Chinese assets, and spur intermittent market rebounds and rallies.”

The dim outlook for the dollar was also reinforced by a majority of FX strategists polled by Reuters, with expectations the greenback’s recent weakness will linger for the rest of the year.

Moreover, yuan short sellers were put on notice by fresh warnings from China’s central bank against speculation.

PBOC governor Pan Gongsheng told a Beijing financial forum that the central bank will prevent overshooting of the yuan and one-sided bets on the currency.

The Chinese currency has lost more than 5% so far this year to become one of the worst performing Asian currencies, dragged down by the widening yield differentials with other major economies and an uneven domestic economic recovery.