China’s yuan rises to 3-week high on fresh signs of easing trade tensions, firmer guidance

SHANGHAI: China’s yuan climbed to a three-week high against the dollar on Wednesday, buoyed by fresh signs of easing trade tensions between the world’s two largest economies and the central bank’s persistently stronger-than-expected guidance fix.

Investor hopes for the two superpowers to reach a final trade deal rose after U.S. Treasury Secretary Scott Bessent said on Tuesday that U.S. and Chinese officials will meet in Stockholm next week to discuss extending a tariff truce.

The 90-day tariff truce agreed by Washington and Beijing during trade talks in Switzerland is due to end on August 12.

The EU-China summit later this week and the August deadline for Beijing and Washington to “reach a trade deal will matter with regards to external demand conditions for China, and are likely to set the tone for the China trade in the second half,” Barclays analysts said in a note.

The onshore yuan rose to a high of 7.1602 per dollar, the loftiest level since July 3, before changing hands at 7.1617 as of 0342 GMT.

Its offshore counterpart followed suit to rise past 7.16 per dollar level for the first time in nearly three weeks. It last traded 0.14% higher at 7.1602.

Currency traders also attributed the yuan strength to a much firmer guidance fix as the central bank lifted the midpoint to a fresh eight-month high.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.1414 per dollar, its strongest since November 6 and 182 pips firmer than a Reuters estimate of 7.1596. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

Some market participants and analysts argued that the economic fundamentals may not support a significantly stronger currency for the time being.

“Exports could face stronger tariff headwinds in the second half after front-loading in the first half … a stronger yuan could further dampen corporate profitability and further weaken the labour market,” said Becky Liu, head of China macro strategy at Standard Chartered.

She said a rising yuan would worsen China’s deflationary pressure even as authorities are making efforts to revive demand and the broader economy.

Liu revised her yuan forecasts to 7.25 per dollar at end-September and 7.35 at year-end, up from the previous predictions of 7.65 and 7.75, respectively - still notably weaker than the current spot level.