Yuan Hits 3.5-Year High as PBOC Lifts Resistance
The Chinese currency reached 6.6957 per dollar on Monday, its strongest level since January 2023, following a shift in central bank guidance.
Key points
- The yuan hit 6.6957 per dollar on Monday, its strongest level since January 16, 2023.
- The PBOC set the daily midpoint at 6.7487, signaling a reduced resistance to currency appreciation.
- This move precedes the Trump-Xi summit, where trade and AI issues are expected to be discussed.
The yuan reached 6.6957 per dollar on Monday, marking its highest level in three and a half years. This sharp gain occurred as the central bank softened its resistance to currency appreciation. The move coincides with upcoming high-level diplomatic talks between Beijing and Washington.
The People's Bank of China set the daily midpoint at 6.7487, the strongest since February 2023. This fixing was 536 pips weaker than market estimates but signals a clear policy shift. Traders interpret this adjustment as an intentional reduction in the pace of currency defense.
Policy shift precedes diplomatic summit
US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng concluded talks in New York. These discussions prepared the ground for the Trump-Xi summit scheduled for Thursday. The agenda covers artificial intelligence, trade relations, and supply chain security.
Goldman Sachs analysts noted that stronger fixing creates room for offshore spot rates to rise. They believe the summit helps maintain a stable trading relationship between the two economies. Policymakers appear comfortable allowing sustained but gradual currency appreciation during this period.
Market expectations remain cautious
The dollar index remained steady at 100.23 after gaining over one percent last week. This stability followed a hawkish interest rate hike from the Federal Reserve. Investors are now assessing the global rate outlook after recent central bank actions.
OCBC warned against viewing this move as the start of a sustained appreciation cycle. The wide yield differential between the US and China remains a significant factor. Recent gains may reflect policy-managed stability around the summit rather than a fundamental re-rating.
Diplomatic context shapes currency outlook
A stronger yuan helps create a constructive backdrop for US-China negotiations. It reduces the scope for renewed accusations of competitive depreciation from American officials. The Star reported that this diplomatic alignment supports broader financial stability in the region.
