China's yuan strengthens on growing prospects of US-Iran peace deal

HONG KONG: China’s yuan firmed against the dollar on Friday following a sharp drop in the greenback overnight after the US called off new strikes on Iran, putting it on track for a weekly gain of about 0.3%.

The dollar slid to its weakest in a week against major peers on rising hopes of a ceasefire between the US and Iran.

 The onshore yuan was 0.09% higher at 6.7656 to the dollar, as of 0257 GMT, after trading in a range of 6.7640 to 6.7682.

 US President Donald Trump said on Thursday a peace deal was likely to be reached as soon as this weekend that would reopen the Strait of Hormuz to shipping, but Iran countered that it had not reached a final decision on an agreement.

Trump’s positive signals on a peace deal eased inflation concerns and put pressure on the dollar index, Nanhua Futures analysts said in a note.

 Strong Chinese export data “solidified the foundation for the yuan’s appreciation,” they added.

 Prior to the market opening, the People’s Bank of China set the midpoint rate at 6.8109 per dollar, its strongest since February 10, 2023, and 469 pips weaker than a Reuters estimate. The spot yuan is allowed to trade a maximum of 2% either side of the fixed midpoint each day.

Analysts believe China’s export growth and factory inflation will likely stay strong for a while thanks to the AI boom, supporting the currency.

 “The global AI investment cycle has supported China’s trade surplus and has driven the Chinese yuan stronger,” Mali Chivakul, Bank J. Safra Sarasin’s emerging markets economist, said in a note.

The private bank revised its year-end dollar-yuan target to 6.5 and foresees further appreciation in 2027.

 The yuan is flat against the dollar this month but 3.4% firmer so far this year, hovering near a three-year high.

 The offshore yuan traded at 6.7665 yuan per dollar, down about 0.05% in Asian trade.

The dollar index, which measures the greenback against a basket of six currencies, was at 99.81.