Yuan edges higher before Powell Jackson Hole speech

The dollar index was last at 99.15, little changed but still below its recent highs, while the U.S. 10-year Treasury yield stood at 4.64% and the 2-year at 4.17%, leaving the curve modestly inverted at 0.47 percentage point. That setup suggests markets are waiting for guidance rather than repricing the entire policy path. Conventional technical indicators also point to a market that has cooled rather than broken trend: the dollar index is below its 50-day moving average of 100.44, with RSI at 34.7, a sign of soft momentum but not yet an oversold reversal.

For yuan traders, the immediate issue is less the spot level than the policy gap it reflects. China has been trying to support growth and financial stability without allowing the currency to weaken too abruptly, while the Fed has kept rates high enough to preserve yield support for the dollar. That spread has left the yuan vulnerable whenever U.S. inflation or growth data force markets to push out rate-cut expectations.

Adalytica’s Fed guidance sentiment gauge sits at 61, in neutral territory, underscoring how little conviction investors have going into Jackson Hole. By contrast, its U.S. dollar trade signal remains in “extreme fear,” a reading that points to thin risk appetite for a decisive dollar breakout but also leaves room for sharp moves if Powell surprises. The market’s larger question is whether the Fed will confirm a gradual easing bias or keep options open in a way that preserves higher-for-longer yields.

For investors, the yuan’s narrow trading band is a reminder that FX markets are being driven by relative policy expectations, not by China alone. A dovish shift from Jackson Hole would likely benefit Asian currencies, commodity exporters and equity sectors sensitive to dollar funding costs. A hawkish tone would likely revive demand for dollars, weigh on carry trades and keep pressure on Chinese assets already grappling with a weak domestic recovery.

The next catalyst is Powell’s speech, which could reset both Treasury yields and dollar positioning. Until then, the yuan is likely to stay boxed in, with traders reluctant to chase a move in either direction before the Fed gives the market a clearer map.