PBOC Fixes Yuan Mid-Rate 9 Basis Points Lower, Citi Slashes Dollar Forecasts

On August 21, the People's Bank of China set the yuan mid-rate against the dollar at 6.7817, down 9 basis points from the previous trading day, ending a three-day streak of upward adjustments. Offshore yuan is currently trading near 6.72178 against the dollar, showing relative strength.

**Slight Mid-Rate Adjustment, Stable Market Sentiment**

The modest pullback in the mid-rate is a normal market fluctuation. Previously, the yuan mid-rate had been adjusted higher for three consecutive trading days, indicating that market expectations for the yuan exchange rate remained broadly stable amid a complex external environment. Through mid-rate signals, regulators continue to guide market expectations and prevent disorderly exchange rate movements.

**Institutional Views Shift, Bullish on Yuan Outlook**

Notably, Citigroup has recently slashed its dollar forecasts significantly. According to earlier analysis by Yu Xiangrong, Chief Economist for Greater China at Citigroup, expectations for yuan appreciation are forming based on factors such as purchasing power parity, rising trade surpluses, and narrowing China-U.S. interest rate differentials, with 7.0 potentially being a key test level for the dollar-yuan exchange rate. Sheng Songcheng, a professor at CEIBS, also believes that improved product competitiveness and a diversified global monetary system lay a solid foundation for a steady-to-stronger yuan in the medium to long term. These views suggest that some major international banks are undergoing a structural shift in their outlook on the yuan.

**Short-Term Fluctuations Do Not Alter Long-Term Logic**

Despite the single-day mid-rate adjustment, the market generally believes that the yuan exchange rate has support amid continued recovery in China's economic fundamentals and a potentially easing external trade environment. Offshore yuan is currently trading near 6.72, notably stronger than the mid-rate level, reflecting overseas markets' positive stance toward the yuan. Going forward, the Fed's monetary policy path and global capital flow direction will be key variables influencing the yuan exchange rate.