Yuan holds near 3-1/2-year high as investors await US inflation data

SHANGHAI: China’s yuan held steady near a 3-1/2-year high against the dollar on Thursday as investors awaited US inflation data, seeking fresh clues on the Federal Reserve’s policy outlook and its potential impact on global financial markets.

Meanwhile, the yield premium of the 10-year US Treasury over its Chinese counterpart widened to the highest level on record, driven by a surge in US yields amid worries that rising oil prices could fuel inflation.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.7766 per dollar, its strongest since February 8, 2023, but 692 pips weaker than a Reuters’ estimate of 6.7074. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

Since November 2025, the central bank has consistently set the yuan midpoint weaker than market forecasts, a move analysts and traders see as an effort to anchor currency stability and curb rapid appreciation.

In the spot market, the onshore yuan changed hands at 6.7080 per dollar as of 0321 GMT, not far from a 3-1/2-year high of 6.7050 hit on Monday.

Its offshore counterpart last fetched 6.7070 yuan per dollar.

“The yuan is likely to trade sideways ahead of the US inflation data,” said a trader at a Chinese bank, adding that the figures due on Friday could prove pivotal for the Fed’s policy trajectory, the dollar’s direction and, in turn, drive broader moves in major currencies.

Traders are now pricing a roughly 60% chance of a Fed rate hike this month after a stronger-than-expected US nonfarm payrolls report last week.

Elias Haddad, global head of markets strategy at Brown Brothers Harriman, said the yuan’s appreciation trend against the dollar remained intact.

“In our view, a continued appreciation in China’s currency can help the country shift its growth model towards consumer spending by boosting disposable income through cheaper imports,” he said in a note, after official data showed that China’s factory-gate inflation and consumer price growth quickened last month on higher energy costs.

The yuan has strengthened about 4.3% against the dollar so far this year, making it one of Asia’s best-performing currencies.