Yuan strengthens past 6.85 level against dollar despite PBOC’s caution

HONG KONG: China’s yuan firmed to a fresh 34-month high against the US dollar on Thursday despite the central bank signalling it wanted to curb the currency’s rapid gains, as seasonal settlement demand underpinned a sustained rally.

 The yuan strengthened past the key 6.85 level against the dollar to 6.8430, the strongest since April 14, 2023, before giving up some of the gains to be up 0.2% by 0202 GMT.

 Its offshore counterpart traded at 6.841 yuan per dollar , also about 0.2% higher.

 The yuan is now up 0.9% against the dollar this week, set to register its 13th straight week of appreciation, supported by a confluence of positive factors including broad US dollar weakness, seasonal export settlement demand and the buoyant performance of the domestic equity market.

“This round of exporter settlement wave may not just be a short-term spike,” analysts at GF Securities wrote in a note. “‘Converting on strength’ is gradually becoming corporate consensus,” they said, referring to exporters converting their dollar receipts into yuan during the currency’s ongoing strong phase.

 The analysts expect strong support for the yuan around the 7.0 per dollar mark.

 Still, the yuan is not simply on a one-way street of sustained gains this year, as currency stability remains the main policy tone and settlement demand is set to ebb after the Lunar New Year, they added.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 6.9228 per dollar, its strongest since May 11, 2023.

It also came in 623 pips weaker than a Reuters’ estimate, the biggest spread on record. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The central bank has been gradually strengthening its daily yuan official guidance but at levels weaker than market projections, signalling its measured approach towards the yuan gain, traders and analysts said.

“The current fixing pattern suggests a calibrated approach—allowing gradual currency appreciation while smoothing volatility — rather than signalling a policy shift to cap gains,” Wee Khoon Chong, APAC Macro Strategist at BNY said in a note.

“There remains scope for further CNH strength” underpinned by improving domestic sentiment, stabilizing macro expectations, and continued foreign inflows, he added.

Elsewhere, the dollar’s six-currency index was 0.1% lower at 97.52, as uncertainty persisted over how US President Donald Trump would respond to the Supreme Court’s ruling on February 20 that struck down his emergency tariffs.