SHANGHAI: China’s yuan firmed against the US dollar on Wednesday as weakness in the greenback following data showing US producer prices increased less than expected in July outweighed a bigger-than-expected drop in Chinese lending last month.

The spot yuan opened at 7.1450 per dollar and was last trading 47 pips firmer than the previous late session close and 0.11% weaker than the midpoint.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1415 per dollar, its strongest in a week and 78 pips firmer than a Reuters’ estimate.

The dollar remained on the back foot on Wednesday after tumbling versus major peers overnight as a benign reading for US producer prices reinforced bets on Federal Reserve interest rate cuts this year.

Risk-sensitive currencies stayed strong after the unexpected softening in inflation buoyed equities, even with crucial US consumer price index (CPI) figures still looming later on Wednesday.

“Looking forward, we believe that it may not be necessary for China’s central bank to guide the continued appreciation of the yuan. In the short term, the yuan exchange rate may depend more on the performance of US economic data,” Guotai Junan Securities said in a note.

Maybank analysts said there are two-way risks for the yuan at this point and expect it to trade between 7.14 and 7.20 against the dollar.

The yuan is up 1% against the dollar this month, and 0.7% weaker this year. It has been under pressure since early 2023 as domestic woes around a moribund property sector, anaemic consumption and falling yields drive capital flows out of the yuan, and foreign investors stay away from China’s struggling stock market.