Full Breakdown
Yuan Strengthens to Multi-Year High as China Eases Currency Curb Ahead of US-China Summit
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Currency Move and Policy Adjustment
On September 21, the yuan rose to a 3½-year peak against the U.S. dollar, trading at 6.6950 per dollar in the on-shore market and 6.6946 offshore. The People's Bank of China (PBOC) set the daily midpoint at 6.7487 per dollar, the strongest level since February 3, 2023, yet still about 536 pips weaker than analysts’ forecasts. This marks a departure from the PBOC’s practice over the past year of fixing the yuan at rates deliberately weaker than market expectations to temper appreciation. The central bank’s tighter midpoint this month narrows the gap with market pricing, indicating a softened resistance to further gains.
Recent Historical Benchmarks
The on-shore close of 6.6955 per dollar on September 21 was the strongest since June 30, 2022. Previously, the PBOC’s midpoint had been set at its weakest in February 2023, a level that helped keep the currency’s rise in check. The current trajectory suggests a shift toward allowing the yuan to appreciate more freely, at least in the short term.
Market and Analyst Reactions
Goldman Sachs analysts noted that the timing of the strengthening aligns with the upcoming summit between the United States and China, suggesting that the summit itself may help sustain a stable trading relationship. OCBC, however, cautioned that the appreciation could be largely policy-managed around the summit rather than a sign of a fundamental re-rating of the renminbi, given the wide U.S.–China yield differential and still-soft domestic fundamentals. Broadly, investors remain wary of interpreting the PBOC’s move as the start of a sustained appreciation cycle.
Implications for Bilateral Talks
A stronger and relatively stable yuan is expected to create a more constructive backdrop for the negotiations slated for later this week, potentially reducing accusations of competitive devaluation. Nonetheless, analysts stress that the summit is unlikely to produce major policy breakthroughs, and market participants should monitor both currency dynamics and the broader geopolitical agenda, which includes AI, trade, supply chains, and Middle East tensions.