Yuan firms as dollar slips, PBOC rejects undervaluation claims amid EU talks

SHANGHAI: The yuan firmed against the US dollar on Friday as the greenback retreated from an 18-month high, even as China’s central bank rejected claims the currency is undervalued amid trade talks between Beijing and the European Union.

The People’s Bank of China on Thursday pushed back against foreign criticism of its exchange-rate policy, saying it has never pursued competitive depreciation, as European policymakers call for a stronger yuan to help curb China’s record trade surplus and export surge.

The remarks came as European Union trade officials began two days of talks with their Chinese counterparts in Beijing, after three months of discussions over the EU’s goods trade deficit of more than €1 billion ($1.12 billion) a day and Chinese curbs on exports of rare earths and other critical minerals.

“The PBOC’s paper signals Beijing’s intent to shape the narrative before any formal demands on exchange rate adjustment can gain traction,” analysts at Commerzbank said in a note.

By setting out its arguments ahead of a crowded international policy calendar, Beijing is seeking to shift the debate away from currency undervaluation and towards the structural drivers of global imbalances, said Tommy Xie, head of Greater China Research at OCBC.

 The spot yuan opened at 6.7000 per dollar and was last trading at 6.6987 as of 0221 GMT, 46 pips firmer than the previous late session close.

Despite the dollar’s strength, the yuan has gained 4.4% this year and nearly 9% against the greenback since late 2024 in a seven-quarter rising streak buoyed by robust exports and policies designed to attract foreign inflows.

“We see little reason to alter our baseline expectation of continued RMB stability with a gradual appreciation bias. Beijing is likely to tolerate measured CNY strength where supported by market fundamentals, while leaning against excessive volatility,” Xie said.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 6.7330 per dollar, its strongest since February 2, 2023, and 357 pips weaker than a Reuters’ estimate.

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

The dollar retreated on Friday as a rise in euro zone bond yields stalled, while expectations for the path of interest rates from the Federal Reserve this year remained largely intact.

The dollar index, which measures the greenback against a basket of six currencies, was 0.088% lower at 102.03.

The offshore yuan traded at 6.6986 yuan per dollar, up about 0.07% in Asian trade.