Yuan Hits Three-Year High, PBOC Eases Curbs
Yuan Hits Three-Year High, PBOC Eases Curbs
Anonymous
Key Points
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The yuan’s official midpoint was set 536 pips weaker than a Reuters estimate, indicating that the PBOC was still keeping the fixing below market expectations despite allowing it to strengthen.
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The spot yuan is permitted to trade within a 2% range on either side of the PBOC’s daily midpoint, giving policymakers continued control over the currency’s pace of appreciation.
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Goldman Sachs analysts said the stronger fixing creates more room for the offshore yuan to rise and argued that a stable summit outcome could allow Chinese policymakers to tolerate “sustained but gradual currency appreciation.”
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The dollar index, which measures the U.S. currency against six major peers, was steady at 100.23 after rising more than 1% the previous week following a hawkish Federal Reserve rate increase, providing broader currency-market context for the yuan’s advance.
China's yuan hit its strongest level in over three years, trading near 6.6950 per dollar, as the People's Bank of China eased its grip on the currency ahead of a planned summit between President Donald Trump and Chinese President Xi Jinping. ARISE TV reports the PBOC set its daily midpoint at 6.7487, the strongest fixing since February 2023, marking a shift after months of restraining appreciation.
Analysts say the move reflects efforts to maintain stability for the upcoming talks rather than a commitment to rapid yuan gains. Goldman Sachs argues a stable summit could allow Chinese policymakers to tolerate 'sustained but gradual currency appreciation,' while Trump and Xi are expected to discuss trade, AI, supply chains, and Middle East tensions.
PBOC Loosens Currency Controls Gradually
The People's Bank of China has begun allowing the yuan guidance rate to move closer to market expectations after months of holding it back. Investing.com notes the PBOC set the midpoint at 6.7459 per dollar, one of its strongest levels since February 2023. However, the official fixing remained 536 pips weaker than Reuters estimates, showing the central bank is still managing the pace of appreciation carefully.
Yuan Gets Room to Rise Under Trading Rules
Chinese policymakers maintain significant control over currency movements through trading bands. The spot yuan is permitted to trade within a 2% range on either side of the PBOC's daily midpoint, limiting how far it can swing in either direction. This structure gives the central bank continued ability to manage the pace of appreciation even as it allows stronger fixes.
Chinese Stocks Rally on US-China Dialogue
Stock markets in China responded positively to the diplomatic momentum. TradingView reports the Shanghai Composite rose 0.4% to 3,963.8, while the Shenzhen Component advanced 1.2% to 13,889, extending gains from the previous session. Finimize notes Chinese stocks opened higher after the US and China agreed to formalize AI-safety talks, including an 'incident line' and a meeting in Shenzhen in about two months.
Dollar Steadies Despite Fed Rate Increase
The US dollar index, which measures the dollar against six major peers, remained steady at 100.23 after rising more than 1% the previous week. The gains followed a hawkish Federal Reserve rate increase that supported dollar strength. The yuan's advance occurs within this broader context of a resilient dollar, suggesting China's currency gains reflect policy shifts rather than wider currency weakness.
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