China’s yuan climbs to fresh 32-month high as PBOC signals measured appreciation

SHANGHAI: China’s yuan rose to a fresh 32-month high against the dollar on Monday as the central bank lifted its official guidance rate further, though not by as much as the market had projected, a move that investors interpreted as signalling room for measured appreciation.

The yuan strengthened 4.5% against the dollar last year for its best annual performance since 2022, underpinned by a broadly weaker greenback and heavier exporters’ year-end settlements of their foreign exchange receipts.

Such conversion has extended into the new year, currency traders said, noting these settlements could continue until the Lunar New Year in mid-February, when companies typically face higher yuan demand to pay employee bonuses.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.0108 per dollar, the strongest level since September 2024, but 259 pips softer than a Reuters estimate of 6.9849.

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

The central bank has maintained its recent approach since late November by setting weaker-than-expected midpoint fixings, a move the market interprets as an effort to prevent the Chinese currency from appreciating too quickly.

“Stronger yuan fix has been a key factor, in guiding the yuan on an appreciation path,” FX strategists at OCBC Bank said in a note.

“Markets continue to keep a lookout for signs if policymakers start to slow the pace of yuan appreciation via the daily fix or continue with a similar trajectory.”

The appreciation of the yuan against the US dollar does not necessarily indicate a revaluation of the currency or Chinese assets as it lacks support from underlying fundamentals, Guan Tao, a former senior foreign exchange regulator, said.

In the spot market, the onshore yuan rose to a high of 6.97 per dollar in early trades, the strongest level since May 2023, before changing hands at 6.9755 as of 0345 GMT.

Its offshore counterpart last fetched 6.9714 per dollar as of 0345 GMT.

Some traders said strength in the A-share market also lent support for the currency and boosted sentiment.

Investors’ long bets on the Chinese yuan rose to their highest in 15 years, the latest Reuters poll showed last week.

Major global investment houses hold divergent views on the Chinese yuan after its breach of the psychologically important 7-per-dollar level at the end of last year, though most expect its strength to persist into the new year.

Separately, market participants will switch their attention to trade and credit lending data due this week for more clues on the health of the world’s second-largest economy.

In global markets, the dollar retreated as US prosecutors opened a criminal investigation into Federal Reserve Chair Jerome Powell, adding to tensions with the Trump administration.