China’s yuan climbs to 15-month high, overcoming weak PBOC fixing

SHANGHAI: China’s yuan climbed to a 15-month high against a weakening US dollar on Tuesday, even as the central bank signalled rising unease over the currency’s recent rally via its official guidance fix.

The yuan has gained more than 3.8% so far this year and looked set to book the biggest annual rise since 2020, supported by broad dollar weakness, easing Sino-US trade tension and resilient Chinese exports.

Global investment houses expect the yuan’s upward momentum to extend into the new year and test the psychologically important 7-per-dollar mark, less than half a percent from the current level.

Most forecast only a modest appreciation.

“I think China will allow the yuan to appreciate at a measured pace but it won’t allow big shifts to avoid one-way bets and casting instability,” said Kelvin Lam, senior China+ economist at Pantheon Macroeconomics.

“Instability in the face of a weakening of Chinese economy is the last thing you want,” Lam said, projecting the yuan to be at 6.95 by the end of 2026.

Prior to market open, the People’s Bank of China set its yuan midpoint rate at 7.0523 a dollar, the strongest since September 30, 2024 though 256 pips weaker than a Reuters estimate of 7.0267.

The gap between the official midpoint and Reuters’ market-based estimate represented the largest weak-side deviation since data became available in 2022.

Currency traders interpreted the softer-than-expected guidance as an attempt to rein in a yuan rally.

In the spot market, the onshore yuan strengthened as far as 7.0281 a dollar, its strongest since September 30, 2024, before changing hands at 7.0285 as of 0402 GMT.

Its offshore counterpart followed the strengthening trend and last fetched 7.0203.

Strength in the yuan was also underpinned by heavier seasonal demand, traders said, as exporters usually convert more of foreign exchange receipts into the local currency to meet various payments, including administrative requirements and for employees, toward the year-end.

Major state-owned banks were seen buying dollars and selling yuan in the onshore spot market to slow yuan gains, people with knowledge of the matter said.

China’s trade surplus with the US topped $1 trillion for the first time in the first 11 months of this year.

However, other indicators point to the world’s second-largest economy stalling in November, with factory output and retail sales growth slowing as a lingering property crisis weighs on consumer and business sentiment.