SHANGHAI: China’s yuan firmed to a near three-month high on Friday, underpinned by investor optimism that the US and China may be able to come to a deal that would avert a trade war, and by improved sentiment in China’s equity markets.
The onshore yuan reached 7.2347 per dollar on Friday, its highest level since November 29, 2024, before paring some gains. Overnight, the offshore yuan hit a near 3-month high, while the dollar dropped to a 2-month low.
President Donald Trump said on Wednesday a trade deal with Beijing was possible and said he expected Chinese President Xi Jinping to visit the United States, without giving a timeline for a trip.
Investors are awaiting further hints from US Treasury Secretary Scott Bessent’s scheduled call with his Chinese counterpart on Friday.
Bessent said in an interview on Thursday that he would urge Beijing to undertake economic reforms to boost domestic consumption, while adding the yuan is a “very difficult currency to value” due to China’s capital controls.
“These comments did not explicitly call for a revaluation of the yuan,” said Philip Wee, senior FX strategist at DBS.
“Instead, they were an implicit call for companies in China to reshore to the US, going beyond the Phase One Trade Deal that focused primarily on China increasing more US imports to address trade imbalances,” Wee said.
Meanwhile, sentiment in the Chinese equity market continued to improve, with Hong Kong’s benchmark Hang Seng index up 16% year-to-date.
UBS analysts said in a note to clients that “markets continue to favor relief from the worst-case, all-out tariff scenario. Increasingly the mentality has shifted toward tariffs as a negotiating tool with a window to make a deal.”
Dollar hits year-to-date lows as bulls get nervous
Spot yuan opened at 7.2450 per dollar and was last trading 21 pips lower than the previous late session close at 7.2412 as of 0310 GMT and 1% weaker than the midpoint.
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1696 per dollar, 737 pips firmer than a Reuters’ estimate. The dollar’s six-currency index was 0.056% higher at 106.41.
The offshore yuan traded at 7.2403 yuan per dollar, down about 0.04% in Asian trade.
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