China's yuan gains as Fed rate caution knocks dollar from 18-month high

SHANGHAI: China’s yuan inched higher against the dollar on Thursday after the US currency slipped from an 18-month peak as Federal Reserve officials cautioned about chances for a hike in interest rates this month, despite hotter-than-expected inflation data.

In the spot market, the onshore yuan was 0.09% higher at 6.6918 per dollar by 0307 GMT, while its offshore counterpart fetched 6.6921.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.7253 per dollar, 276 pips weaker than a Reuters’ estimate of 6.6977.

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

Based on Thursday’s official midpoint guidance fix, the yuan’s trade-weighted value against its major trading partners, as measured by the CFETS yuan basket index, rose to a more than four-year high of 103.73, according to Reuters calculations based on official data.

The yuan has gained about 5.9% so far this year versus its major trading partners, compared with a 4.5% rise to the dollar.

“We expect gradual yuan appreciation through the rest of 2026 and into 2027, with occasional volatility to discourage speculative inflows,” analysts at Pantheon Macroeconomics said in a note.

“Strong exports, particularly from high-tech industries, give policymakers confidence that modest appreciation is manageable.”

A string of upbeat Chinese economic data, ranging from trade to credit lending, underpinned market sentiment in morning deals, currency traders said on Thursday.

But attention will quickly shift to Monday’s release of third-quarter gross domestic product (GDP) data, they added.

“China should have little difficulty achieving its 4.5%-5.0% GDP growth target this year,” said Michelle Lam, Greater China economist at Societe Generale.

“To reach the lower end of the target range, growth of only 4.3% in the second half of 2026 would be required. Hence, we expect policymakers to continue delivering only incremental

 easing measures through the remainder of 2026.“