Yuan firms as central bank signals confidence with stronger midpoint
China’s yuan strengthened against the U. S. dollar after the central bank set its daily trading midpoint on the stronger side of 7 per dollar for the first time since 2023, a move widely read by markets as a calibrated signal of policy confidence amid shifting global currency dynamics. In onshore trading, the yuan edged towards a level not seen in nearly 32 months, while the offshore unit tracked the move, reflecting expectations that monetary authorities are willing to lean against excessive depreciation pressure. The fixing, which guides onshore trading within a permitted band, came in firmer than market models had anticipated, underscoring official resolve to maintain currency stability even as interest rate differentials with the United States remain wide. The People’s Bank of China has relied on the midpoint mechanism as a key communication tool over the past year, adjusting it to smooth volatility rather than engineer sharp moves. By setting the fixing below the psychologically important 7-per-dollar threshold, the central bank signalled comfort with gradual appreciation, a stance that traders said could temper speculative positioning and encourage corporate dollar selling. Market participants pointed to a combination of factors supporting the yuan’s advance. The U. S. dollar has softened as investors reassess the pace and extent of future policy easing by the Federal Reserve, while yields on U. S. Treasuries have retreated from earlier highs. At the same time, China’s trade balance has remained in surplus, providing a steady flow of foreign exchange, even as export growth moderates and imports reflect uneven domestic demand. Currency strategists noted that the fixing move aligns with a broader pattern seen over recent months, where authorities tolerate two-way movements but act decisively when depreciation risks intensify. State-owned banks were observed offering dollars in the onshore market following the midpoint announcement, a practice often interpreted as tacit guidance rather than formal intervention. The yuan’s strengthening also carries implications for domestic policy. A firmer currency can help contain imported inflation, particularly for energy and commodities priced in dollars, offering policymakers more room to support growth through targeted liquidity measures. However, sustained appreciation could weigh on exporters already navigating thinner margins and weaker external demand. Corporate hedging behaviour has shifted alongside these signals. Exporters, who had built up sizeable dollar holdings during earlier bouts of yuan weakness, have shown greater willingness to convert proceeds, while importers have reduced the urgency of advance dollar purchases. This rebalancing has contributed to smoother trading conditions and narrower bid-offer spreads in both onshore and offshore markets. Analysts cautioned that the central bank’s approach remains pragmatic rather than directional. Officials have repeatedly emphasised that the exchange rate will be kept broadly stable at an adaptive equilibrium level, shaped by market forces and fundamentals. Any rapid or disorderly move, either stronger or weaker, would likely draw a policy response through fixings, liquidity tools or guidance to financial institutions. The global context remains a key variable. Geopolitical tensions, shifts in risk appetite and changes in major central bank policies continue to influence capital flows across emerging markets. Against this backdrop, the yuan’s performance is increasingly compared with regional peers, many of which have also benefited from a softer dollar but face their own domestic constraints. Equity and bond markets in China reacted calmly to the currency move, suggesting that investors viewed the stronger fixing as an affirmation of stability rather than a signal of tightening. Benchmark government bond yields were little changed, while stock indices showed modest gains, supported by sectors sensitive to currency strength such as airlines and companies with high import content. The article Yuan firms as central bank signals confidence with stronger midpoint appeared first on Arabian Post.
China’s yuan strengthened against the U. S. dollar after the central bank set its daily trading midpoint on the stronger side of 7 per dollar for the first time since 2023, a move widely read by markets as a calibrated signal of policy confidence amid shifting global currency dynamics.
In onshore trading, the yuan edged towards a level not seen in nearly 32 months, while the offshore unit tracked the move, reflecting expectations that monetary authorities are willing to lean against excessive depreciation pressure. The fixing, which guides onshore trading within a permitted band, came in firmer than market models had anticipated, underscoring official resolve to maintain currency stability even as interest rate differentials with the United States remain wide.
The People’s Bank of China has relied on the midpoint mechanism as a key communication tool over the past year, adjusting it to smooth volatility rather than engineer sharp moves. By setting the fixing below the psychologically important 7-per-dollar threshold, the central bank signalled comfort with gradual appreciation, a stance that traders said could temper speculative positioning and encourage corporate dollar selling.
Market participants pointed to a combination of factors supporting the yuan’s advance. The U. S. dollar has softened as investors reassess the pace and extent of future policy easing by the Federal Reserve, while yields on U. S. Treasuries have retreated from earlier highs. At the same time, China’s trade balance has remained in surplus, providing a steady flow of foreign exchange, even as export growth moderates and imports reflect uneven domestic demand.
Currency strategists noted that the fixing move aligns with a broader pattern seen over recent months, where authorities tolerate two-way movements but act decisively when depreciation risks intensify. State-owned banks were observed offering dollars in the onshore market following the midpoint announcement, a practice often interpreted as tacit guidance rather than formal intervention.
The yuan’s strengthening also carries implications for domestic policy. A firmer currency can help contain imported inflation, particularly for energy and commodities priced in dollars, offering policymakers more room to support growth through targeted liquidity measures. However, sustained appreciation could weigh on exporters already navigating thinner margins and weaker external demand.
Corporate hedging behaviour has shifted alongside these signals. Exporters, who had built up sizeable dollar holdings during earlier bouts of yuan weakness, have shown greater willingness to convert proceeds, while importers have reduced the urgency of advance dollar purchases. This rebalancing has contributed to smoother trading conditions and narrower bid-offer spreads in both onshore and offshore markets.
Analysts cautioned that the central bank’s approach remains pragmatic rather than directional. Officials have repeatedly emphasised that the exchange rate will be kept broadly stable at an adaptive equilibrium level, shaped by market forces and fundamentals. Any rapid or disorderly move, either stronger or weaker, would likely draw a policy response through fixings, liquidity tools or guidance to financial institutions.
The global context remains a key variable. Geopolitical tensions, shifts in risk appetite and changes in major central bank policies continue to influence capital flows across emerging markets. Against this backdrop, the yuan’s performance is increasingly compared with regional peers, many of which have also benefited from a softer dollar but face their own domestic constraints.
Equity and bond markets in China reacted calmly to the currency move, suggesting that investors viewed the stronger fixing as an affirmation of stability rather than a signal of tightening. Benchmark government bond yields were little changed, while stock indices showed modest gains, supported by sectors sensitive to currency strength such as airlines and companies with high import content.
The article Yuan firms as central bank signals confidence with stronger midpoint appeared first on Arabian Post.
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