Key Takeaways
- The yuan strengthened against the US dollar as the greenback retreated from an 18-month high.
- China’s central bank rejected claims that the currency is undervalued amid trade talks with the European Union.
- The yuan has gained 4.4% this year and nearly 9% since late 2024, buoyed by robust exports and policies attracting foreign inflows.
The yuan strengthened against the US dollar on Friday, as the greenback retreated from an 18-month high. The 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. This strength is supported by robust exports and policies designed to attract foreign inflows.
The People’s Bank of China (PBOC) 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 PBOC rejected claims that the yuan is undervalued amid trade talks between Beijing and the European Union. Analysts at Commerzbank noted that the PBOC’s paper signals Beijing’s intent to shape the narrative before any formal demands on exchange rate adjustment can gain traction.
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.
Tommy Xie, head of Greater China Research at OCBC, stated that Beijing is seeking to shift the debate away from currency undervaluation and towards the structural drivers of global imbalances. He added, 'We see little reason to alter our baseline expectation of continued RMB stability with a gradual appreciation bias.'
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. Analysts predict that Beijing is likely to tolerate measured CNY strength where supported by market fundamentals, while leaning against excessive volatility.
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, Commerzbank
We see little reason to alter our baseline expectation of continued RMB stability with a gradual appreciation bias.
Tommy Xie, Head of Greater China Research at OCBC
