Yuan Hits 3.5-Year High as PBOC Eases Currency Curb
The yuan reached 6.6957 per dollar, its strongest level since January 2023, as the central bank softened its daily fixing.
Key points
- The yuan hit 6.6957 per dollar, its highest level since January 2023, on Monday.
- The PBOC set its midpoint at 6.7487, signaling a softer stance on currency appreciation.
- This policy shift occurred ahead of the summit between US and Chinese leaders.
The Chinese yuan climbed to 6.6957 per dollar on Monday. This marks the strongest level for the currency since January 2023. The move followed a decision by the People's Bank of China to ease its resistance to appreciation.
The central bank set the daily midpoint rate at 6.7487. This figure is significantly stronger than recent guidance levels. The shift occurred just days before the summit between President Trump and President Xi.
Policy shift precedes diplomatic summit
Treasury Secretary Bessent and Vice Premier He Lifeng concluded talks in New York. Their discussions aim to set the stage for the upcoming presidential meeting. The agenda includes trade relations, supply chains, and artificial intelligence.
Analysts at Goldman Sachs noted that this fixing strength aligns with historical patterns. They expect policymakers to allow gradual currency appreciation during this period. A stable trading relationship is a key goal for both sides.
Midpoint gap narrows with market views
For nearly a year, the PBOC set guidance weaker than market estimates. This strategy was intended to slow the pace of yuan appreciation. However, the gap between official rates and market expectations has narrowed sharply this month.
The official midpoint now trades much closer to the consensus forecast. This change suggests the central bank is no longer actively fighting strength. The spot yuan is permitted to trade within a two percent band of this midpoint.
Broader dollar index remains steady
The dollar index held steady at 100.23 in Asian trade. This follows a one percent gain last week after the Federal Reserve hiked rates. Investors are currently assessing the global interest rate outlook amid these recent policy shifts.
OCBC analysts warn against viewing this as a sustained appreciation cycle. A stronger yuan helps reduce accusations of competitive depreciation. However, the primary focus remains on maintaining stability ahead of the key diplomatic events.
