The onshore yuan reached a one-month low of 7.1813 per dollar before recuperating some of those losses to trade 0.08% lower at 7.1749, while its offshore counterpart dropped as far as 7.1906 per dollar, languishing near Friday’s one-month trough

The yuan dropped on Monday to a one-month low after China’s central bank surprised markets by keeping its medium-term policy rate steady, while the dollar was little changed on Martin Luther King Jr. Day, a public holiday.

The People’s Bank of China left interest rates unchanged when rolling over maturing medium-term policy loans, defying market expectations for a cut to support China’s bumpy post-pandemic economic recovery.

That sent the onshore yuan to a one-month low of 7.1813 per dollar before recuperating some of those losses to trade 0.08% lower at 7.1749.

Its offshore counterpart dropped as far as 7.1906 per dollar, languishing near Friday’s one-month trough.

China’s central bank kept its medium-term lending facility rate unchanged at 2.5%, contrary to the widespread consensus of a 10 basis points cut, said Tommy Wo, senior economist at Commerzbank.

However, rate cuts are still on the table, he said.

The U.S. Fed’s pivot has allowed the PBC to conduct more accommodative monetary policy. There will be more room for PBC rate cuts when the timing of Fed’s rate reduction becomes clearer, he added.

China’s fourth-quarter GDP, December industrial production, retail sales and unemployment rate are among the key economic indicators out on Wednesday.

The dollar index, measuring the U.S. currency against six rivals, was little changed up 0.07% to 102.58, ahead of the U.S. Martin Luther King Day holiday on Monday.

Bets for Fed cuts this year, beginning as early as March, have increased after data on Friday showed U.S. producer prices declined in December, sending Treasury yields slipping in response.

Despite the upside surprise to the CPI on Thursday, investors grew increasing confident that the Fed is likely to pare rates soon, said Jim Reid, strategist at Deutsch Bank.

Market pricing now points to a 77% probability that the U.S. central bank will begin cutting rates in March, as compared to a 68% chance a week ago, as per the CME FedWatch tool.

Elsewhere, the euro hovered near the $1.10 mark and was last flat on the day at $1.0946.

In Asia, the yen remained under pressure, down 0.5% at 145.69 per dollar on expectations that the BoJ is likely to keep its ultra-loose policy settings unchanged at its upcoming policy meeting next week.