PBoC: Steepening bias as industrial activity holds – DBS

FXStreet Insights Team FXStreet

DBS Group Research economist Samuel Tse analyses recent steepening in Chinese Yuan (CNY) rates, linking it to a ceasefire between the United States (US) and Iran and stronger-than-expected Q1 growth in China. He highlights resilient Purchasing Managers' Index (PMI), firm industrial and external activity, robust onshore bond demand and continued offshore inflows, arguing this backdrop supports a stable front end and an accommodative but measured People's Bank of China (PBoC) stance.

Steepening curve on solid macro backdrop

"The CNY curve has steepened in the past week, driven by a ceasefire between the US and Iran and a stronger-than-expected macro starting point in Q1. China’s economy grew 5% YoY in Q1, supported by resilient external demand and a continued rebound in industrial activity."

"First, we expect PMI to remain resilient 50.3 in April, supported by improving high-frequency indicators. Industrial activity continues to pick up, with cement clinker and electric furnace utilisation rising by 2.4ppt and 1.0ppt, respectively, alongside higher operating rates at major steel mills. Importantly, the impact of the oil shock remains largely contained within energy-related sectors."

"Operating rates at petroleum asphalt plants have declined, while PTA load rates fell from 89.4% in March to 75.7% in April mtd. However, broader industrial activity has yet to show meaningful spillover, suggesting limited transmission beyond oil-linked industries at this stage."

"In addition, onshore bond demand remains robust. Northbound Bond Connect turnover reached a record CNY1.22tn in March, with average daily volumes rising to CNY55.6bn, both all-time highs. EPFR data show China bond funds recorded USD1.6bn of inflows in the first week of April, pointing to continued offshore demand."

"Taken together, growth momentum remains stable but uneven, reinforcing expectations of a measured policy stance. The PBOC is likely to maintain an accommodative bias via liquidity operations, while refraining from aggressive rate cuts."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD flirts with weekly highs in the Fed's aftermath

GBP/USD reversed early losses following the Federal Reserve decision to keep rates on hold and neared the 1.3360 level before shedding some ground. Focus shifts to Governor Kevin Warsh's speech, while the Bank of England will announce its monetary policy decision on Thursday.

EUR/USD extends rally pass 1.1450 on Fed's Warsh

EUR/USD trades at fresh weekly highs above 1.1450, following the Federal Reserve monetary policy decision to keep interest rates on hold. The statement showed policymakers remain confident in economic progress while blaming inflation on energy prices. The divided vote among officials put in doubt a September hike, leading to sharp US Dollar losses.

Gold faces rejection near $4,100 amid emergence of USD dip-buying

Gold struggles to build on a modest intraday uptick beyond $4,100 during the Asian session on Thursday as the US Dollar attracts some dip-buyers following the previous day's post-FOMC slide to a one-week low. Escalating US-Iran tensions support oil prices, fueling inflation fears and bolstering bets for at least one Fed rate hike in 2026. This, in turn, underpins the Greenback and acts as a headwind for the non-yielding bullion.

Bitcoin trails US Dollar as Fed holds rate steady

The Federal Reserve (Fed) kept its benchmark interest rate unchanged at 3.50% to 3.75% at its July meeting on Wednesday, in line with market expectations. Minutes from the meeting showed that economic activity has been expanding at a solid pace despite elevated uncertainty. The central bank also noted that job gains have "kept pace with the workforce."

No soft target: Warsh vows to return inflation to 2%

The Fed left interest rates unchanged at 3.50%-3.75%, but the decision carried a distinctly hawkish edge as three officials voted for an immediate 25-basis-point increase. Chair Kevin Warsh reinforced that message, insisting there was no tolerance for a softer inflation target and warning that the Fed would not hesitate to act.

US Dollar mid-year outlook: Exceptional currency, exceptional risks?

The US Dollar enters the second half of 2026 in a markedly different position from a year ago. The King currency has recovered, reflecting persistent US inflation, changing expectations for Fed policy, geopolitical tensions and renewed demand for defensive assets.