As Lee Hardman, analyst at MUFG FX, notes, the most vital economic data released tonight was the latest Chinese CPI report for July.

USD/CNY is rising back towards 7.1800

“The report revealed that core inflation rose slightly by 0.3 points to 0.5% in July. The core inflation rate fell to 0.4% in July from 0.6% in May-June. The release of the latest PPI report revealed that producer price deflation continued, falling by an annual rate of -0.8% in July. Overall, the development in inflation, together with the recent slowdown in growth momentum in Q2, will keep pressure on the PBoC to cut rates further this year.”

“The renminbi has given back some of its recent gains over the past week. After hitting an intraday low of 7.1153 on Aug. 5, USD/CNY has since rallied back to 7.1800. The renminbi has benefited, along with the yen and other Asian currencies, from recent position liquidation as popular short positions have been curtailed.”

“This means the renminbi has strengthened following the PBoC’s decision to cut rates further late last month. While yields in China have continued to fall over the past month, this has been more than offset by a larger decline in U.S. yields as market participants begin to price in a higher probability of more aggressive rate cuts from the Fed.”