The Chinese currency has now regained all the ground it lost earlier in the year, and hit a five-month high after the People's Bank of China (PBOC) set a slightly stronger yuan midpoint to reflect a weakening in the dollar index.
But traders believe the central bank may act to cool renewed zeal for the yuan and could even intervene in trading to control the pace of its appreciation if the currency rises too sharply amid a sharp slowdown of China's exports, traders said.
"QE3-driven risk interest continues fermenting," said a trader at a European bank in Shanghai, referring to the latest bout of bond buying by the US Federal Reserve.
"But we don't believe the yuan has much room to appreciate, as the authorities need a relatively stable currency to prevent a further slowdown in China's exports."
Spot yuan was trading at 6.2940 versus the dollar at midday, up from Thursday's close of 6.3025, after hitting an intraday high of 6.2934, its strongest since April 17.
Before trading began, the PBOC set the yuan's midpoint at 6.3410, slightly stronger than Thursday's 6.3459.
A dollar strengthening that lasted for three months from late April had pushed the yuan to depreciate as much as 1.6 percent this year by late July, but the Chinese currency has since recovered all its lost territory compared with its closing level of 6.2940 at the end of last year.