China yuan hovers near 3-1/2-year peak ahead of US inflation data

SHANGHAI: China’s yuan hovered near a 3-1/2-year peak against the dollar on Tuesday, as investors awaited clearer signals from US economic data and the monetary policy outlook to gauge the direction of the Chinese currency.

US inflation data due later this week could offer clues to how the Iran conflict has fanned price pressures, which could affect the Federal Reserve’s policy outlook after last week’s weak employment report tempered rate hike expectations.

The yuan traded near a multi-year high on Tuesday in the absence of fresh catalysts.

The onshore yuan strengthened 0.02% to 6.7447 per dollar by 0258 GMT, not far from the previous day’s level of 6.7429, its strongest since February 2023.

 Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.7900 per dollar, 403 pips weaker than a Reuters’ estimate of 6.7497.

The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

“We continue to see room for yuan strength, supported by exporter conversions and a softer USD backdrop, but policymakers are likely to keep the pace measured,” said Christopher Wong, foreign exchange strategist at OCBC.

 The PBOC has been setting weaker-than-expected midpoint fixings since November 2025, which investors and traders see as a bid to prevent excess yuan gains and keep markets stable.

The yuan’s offshore counterpart last fetched 6.7456 yuan per dollar, up about 0.01% in Asian trade.

Currency traders said they closely monitored the Japanese yen, which has given up about half its gains triggered by recent joint intervention efforts by Japan and the United States, for signs of further official support. Strength in the yen could also lend support to the yuan.