Yuan hits fresh multi-year peak as PBOC eases curb ahead of Trump-Xi summit

HONG KONG: China’s yuan strengthened to more than a 3-1/2-year high against the US dollar on Monday as the central bank softened its curb on currency appreciation ahead of the meeting this week between the leaders of China and the US.

 US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng concluded talks in New York on Sunday, laying the groundwork for President Donald Trump and Chinese President Xi Jinping to consider at their summit on Thursday.

The two sides are expected to discuss AI, trade relations, supply chains and Middle East tensions, among other issues, although analysts expect no major policy breakthrough.

 The yuan strengthened to a high of 6.6957 per dollar in early trade, the strongest level since January 16, 2023.

 The offshore yuan traded at 6.6946 yuan per dollar, up about 0.03% in Asian trade.

 Prior to the market open, the People’s Bank of China set the midpoint rate at 6.7487 per dollar, the strongest since Feb 3, 2023, but 536 pips weaker than a Reuters estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

 For nearly a year, the central bank has set its daily official yuan guidance at levels weaker than market expectations, a move traders and analysts have interpreted as an attempt to slow the currency’s appreciation.

However, the official midpoint has strengthened at a faster pace this month, narrowing its gap with market expectations after it hit its widest level since February, suggesting the PBOC has eased its resistance to yuan gains.

 The fixing strength in the run-up to the Trump-Xi summit is in line with recent history, creating greater room for offshore spot to strengthen further, analysts at Goldman Sachs said in a note.

“The fact that the summit is occurring should help maintain a stable trading relationship… policymakers in China should continue to feel comfortable allowing sustained but gradual currency appreciation.”

Broader currency markets were largely muted as investors pondered the global interest-rate outlook after a wave of hikes from major central banks last week.

The dollar index, which tracks the US currency against six major peers, was steady at 100.23 after gaining more than 1% last week following a hawkish hike from the Federal Reserve.

 A stronger and relatively stable yuan will help create a more constructive backdrop for US-China negotiations and reduce the scope for renewed accusations of competitive depreciation, but investors should be cautious about interpreting the PBOC move as the beginning of a sustained yuan appreciation cycle, OCBC said in a note.

“Given the wide US-China yield differential and still-soft domestic fundamentals, part of the recent appreciation may reflect policy-managed stability around the summit rather than a fundamental re-rating of the RMB.”