Key Takeaways
- China’s yuan holds steady near a 3-1/2-year high against the dollar.
- US inflation data expected to influence Federal Reserve’s policy outlook.
- Yuan’s appreciation trend against the dollar remains intact.
China’s yuan has held steady near a 3-1/2-year high against the dollar, as investors await US inflation data. The currency’s strength is seen as a reflection of its stability and the central bank’s efforts to manage its value.
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 traded at 6.7080 per dollar as of 0321 GMT, close to a 3-1/2-year high of 6.7050 hit on Monday.
Traders are closely monitoring US inflation data due on Friday, which could provide key insights into the Federal Reserve’s policy trajectory and the direction of the dollar. A stronger-than-expected US nonfarm payrolls report last week has increased the likelihood of a Federal Reserve rate hike this month, now priced at around 60%.
The yuan’s appreciation trend against the dollar has continued, with the currency strengthening about 4.3% against the dollar so far this year. Analysts at Brown Brothers Harriman note that a continued appreciation in the yuan can help China shift its growth model towards consumer spending by boosting disposable income through cheaper imports.
Elias Haddad, global head of markets strategy at Brown Brothers Harriman, stated, '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.'
The yuan’s performance is also linked to the widening yield premium of the 10-year US Treasury over its Chinese counterpart, driven by a surge in US yields amid worries that rising oil prices could fuel inflation.
A trader at a Chinese bank commented, 'The yuan is likely to trade sideways ahead of the US inflation data,' adding that the figures due on Friday could prove pivotal for the Fed’s policy trajectory, the dollar’s direction, and broader moves in major currencies.
Despite the yuan’s appreciation, the PBOC has consistently set the yuan midpoint weaker than market forecasts since November 2025, a move seen as an effort to anchor currency stability and curb rapid appreciation.
The yuan is likely to trade sideways ahead of the US inflation data.
A trader at a Chinese bank, Trader
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.
Elias Haddad, Global head of markets strategy at Brown Brothers Harriman
