China's yuan gets stronger after dollar slumps overnight

SHANGHAI: China’s yuan hit its firmest level in 3-1/2 years on Thursday after the dollar slumped overnight, as the US’ move to prop up long-dated bonds failed to ease concerns over the country’s spiraling debt.

But the yuan’s strength was capped by the People’s Bank of China’s move on Thursday to slow the pace of appreciation by using the guidance rate.

The onshore yuan touched 6.7203 per dollar in early trading, the strongest level since February 2023.

Before the market opened, the PBOC set its yuan reference rate at 6.7808 per dollar. That was 612 pips weaker than a Reuters estimate, representing the biggest weak-side deviation since February.

The PBOC’s guidance came after the dollar fell 0.8% against major currencies overnight, dropping to its lowest level in 2-1/2 months.

The dollar softness was partly triggered by a retreat in US yields after the US Treasury unveiled support measures for long-duration bonds.

But the move did not dispel fears about the US’ fiscal health as total US debt topped $40 trillion for the first time.

The US Treasury’s move to double US long-bond buybacks “is aimed at steadying market liquidity and signaling support,” Guosheng Securities said in a note.

“But in essence, it hasn’t mitigated the structural pressure from a long-term rise in US fiscal deficit, as well as supply of long-term bonds.”

Nanhua Futures said Thursday’s yuan strength was the direct result of a weakening dollar.

The broker advised traders to closely monitor US inflation and employment data for tips on the future path of US monetary policy.