Yuan Mid-Price Adjusted Down 24 Basis Points, Pakistan's Top Military Commander Visits Iran Today for Mediation

On August 24, the yuan's mid-price against the dollar was set at 6.7841, down 24 basis points from the previous trading day, extending the pullback from the prior day. Earlier, the mid-price had risen for three consecutive days, accumulating a gain of 97 basis points, but has since turned to a slight retreat over the past two trading days.

**Mid-Price Pulls Back but Market Rates Remain Strong**

The mid-price was adjusted lower for a second consecutive day, but onshore and offshore market rates were notably stronger. The previous trading day, the onshore yuan closed at 6.7589, and the offshore rate closed at 6.7517, with spreads of 309 and 381 basis points, respectively, against the day's mid-point. Market sources indicate that both onshore and offshore rates being stronger than the mid-point reflects sustained positive sentiment toward the yuan, with the mid-point's pullback more of a technical correction after the prior consecutive rises.

**External Geopolitical Factors Have Limited Impact on Exchange Rates**

Recent developments in the Middle East have seen a dramatic reversal, with both the U.S. and Iran announcing a mutual ceasefire, and Iran agreeing to fully, immediately, and safely reopen the Strait of Hormuz. The U.S. stated that two weeks would be sufficient to finalize and refine the agreement. The phased easing of geopolitical tensions warrants attention for its marginal impact on dollar safe-haven demand. However, judging from the yuan's exchange rate performance, the short-term shock of external events has not altered the market's positive outlook on the yuan, with onshore and offshore rates maintaining relative strength.

**Short-Term Focus on Mid-Point and Market Rate Spread**

After two consecutive days of mid-point adjustments lower, a significant spread remains between the mid-point and onshore/offshore market rates. This spread level indicates that the yuan expectations implied by market trading prices are more positive than the official pricing reflected in the mid-point. Whether the mid-point will subsequently converge toward market rates, and the actual progress of the US-Iran ceasefire agreement, will be the key points to watch for the yuan's short-term direction.