USD/CNH rises to near 7.3500 due to a hawkish shift in Fed's policy outlook

• The USD/CNH pair strengthens as the US Dollar gains support from the Federal Reserve's hawkish policy shift.
• The latest ISM services report indicated higher activity and rising prices, fueling concerns about persistent inflation in the United States.
• PBoC official Peng Lifeng announced that the central bank will support banks in expanding loans under the trade-in initiative.

USD/CNH, the offshore Yuan, retraces its recent losses from the previous two days, trading around 7.3490 during the early European hours on Wednesday. The People's Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1887 as compared to the previous day's fix of 7.1879 and 7.3435 Reuters estimates.

The upside of the USD/CNH pair could be attributed to the strength of the US Dollar (USD), driven by a hawkish shift in investor sentiment regarding the Federal Reserve's (Fed) interest rate outlook, following robust US economic data.

The latest ISM services report suggested increased activity and rising prices in the United States (US), intensifying concerns about persistent inflation. Traders are now focusing on upcoming US jobs data, including the Nonfarm Payroll (NFP) report, as well as the latest FOMC Minutes, for further policy insights.

Meanwhile, the Chinese Yuan faced downward pressure after President-elect Donald Trump dismissed reports claiming that his aides were considering a targeted strategy aimed at sectors vital to US national and economic security.

The People's Bank of China (PBoC) is collaborating with the State Planner to bolster the country's economy. PBoC official Peng Lifeng announced that the central bank will assist banks in expanding loans under the trade-in initiative.

Commerzbank's FX analyst, Volkmar Baur, noted in a report that the interest rate market remains unconvinced that China's economic situation will improve in the near future. Over recent weeks, the yield on 10-year government bonds has declined further to 1.58%, while the yield on 2-year government bonds briefly dipped below 1% on Monday. This suggests that the market anticipates additional significant easing measures from the PBoC and the continuation of low interest rates in China.

Traders shift their focus to China's upcoming economic data releases later this week, including inflation figures, which are anticipated to offer greater insight into the health of the world's second-largest economy.