Yuan climbs to one-week high as PBOC sets stronger fixing, dollar eases

SHANGHAI: The Chinese yuan firmed to a one-week high against the US dollar on Friday, buoyed by a stronger central bank fixing and a softer greenback, though analysts expect the currency to remain tethered to the dollar in the near term.

The spot yuan opened at 6.7875 per dollar and was last trading at 6.782 at 0201 GMT, 90 pips firmer than the previous late-session close.

Before the market opened, the People’s Bank of China (PBOC) set the midpoint rate at 6.7989 per dollar, its strongest fixing and below a key 6.8 threshold for the first time since February 10, 2023.

The fixing still came in 58 pips weaker than a Reuters estimate.

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

The central bank has been guiding the yuan weaker than market expectations since late last year to slow the pace of appreciation.

But the fixing gap has narrowed sharply from the 500-plus pips seen at times last month, signaling a more measured approach with a firm dollar.

The yuan is up 0.1% against the dollar this month and 3.1% firmer so far this year.

Still, the PBOC is unlikely to shift away from its broader easing bias given softening inflation, said Samuel Tse, a rates strategist at DBS. Chinese consumer prices rose just 1.0% in June from a year earlier, slowing from a 1.2% gain in May, data showed Thursday.

“We do not view that the PBOC will re-engineer a rate cut,” Tse said. “Nominal yields are already too low. Any marginal decline in interest rates may pose limited support to the economy but could instead dampen the net interest margin of commercial banks.”

 Policymakers are also expected to hold off on rolling out new stimulus measures. July’s Politburo meeting will likely center on the implementation of existing support programs - particularly the 800 billion yuan ($117.8 billion) policy financing facility - rather than fresh initiatives, ANZ analysts wrote in a note.

The dollar eased a touch on Friday but was set to end the week little changed, with renewed safe-haven gains offset by receding expectations of a Federal Reserve rate hike.

Investors will be watching next week for a raft of key Chinese data, including second-quarter gross domestic product, along with June trade and activity figures, for further clues on the outlook for the world’s second-largest economy.

The offshore yuan traded at 6.785 yuan per dollar, up about 0.17% in Asian trade.

The dollar index, which measures the greenback against a basket of six currencies, was 0.178% lower at 100.73.