Yuan climbs to fresh 14-month high after Fed cut

HONG KONG: The Chinese yuan strengthened to a fresh 14-month high against the US dollar on Thursday, as the greenback weakened following a Fed rate cut while investors look to China’s key policy meeting for further guidance.

The spot yuan strengthened to as much as 7.0550, the strongest level since October 9, 2024, before trading 0.07% higher to the dollar at 7.0613 by 0246 GMT.

 The offshore yuan traded at 7.0593 yuan per dollar, up about 0.04% in Asian trade. Overnight, the US Federal Reserve lowered its benchmark funds rate by 25 basis points to 3.5-3.75% as expected, while delivering an outlook that was less hawkish than some had anticipated, easing market nerves.

 “Looking ahead to 2026, we still expect one more rate cut in the first quarter, likely 25 basis points,” and the dollar should continue to weaken in the first half, said Hu Yifan, Regional Chief Investment Officer and Head Macroeconomics APAC at UBS Global Wealth Management.

The yuan is likely to maintain its gradual upward trend, staying around 7.0 through mid-2025 and potentially reaching 6.9 in the second half, she added.

 Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.0686 per dollar, its strongest since October 9, 2024 and 161 pips weaker than a Reuters’ estimate.

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

 The Chinese currency has strengthened 3.4% against the dollar this year, poised for its biggest annual rise since 2020.

The central bank has been gradually strengthening its daily yuan official guidance since late April, with a bias suggesting it is allowing some appreciation.

 “The next catalysts to watch will be the Central Economic Work Conference. Comments on the economy and exchange rates could significantly influence the yuan’s trajectory going forward,” analysts at Nanhua Futures said.

 Meanwhile, as seasonal settlement effects gradually play out, the yuan could also gain some upward momentum against the dollar in the near term, they added.

Elsewhere, Hong Kong’s de-facto central bank lowered on Thursday its base interest rate charged via the overnight discount window by 25 basis points to 4.0%, tracking a cut by the US Federal Reserve.