Yuan hits fresh 3-1/2-year high despite PBOC's weak guidance

On Monday the Chinese currency reached 6.7050 per dollar in early Asian trade, its firmest level since February 2023, Business Recorder reported. That rise came even though the People's Bank of China set its daily midpoint at 6.7795, a figure 709 pips weaker for the yuan than a Reuters estimate. Later the spot rate slipped back to 6.7125, while the offshore yuan traded at 6.7113.

Traders and analysts said the central bank has been raising its guidance gradually, yet at levels softer than the market anticipated, which points to a wish to control how fast the currency gains. Geoff Yu, a senior strategist at BNY, observed that the yuan is among the steadiest currencies in the region, but authorities are paying it closer attention. He added that flow data show investors have moved further toward underweight positions as appreciation loses momentum.

Chinese banks have increased dollar deposit rates and purchased US Treasuries over recent months, steps that could temper yuan gains, Reuters reported. Meanwhile the dollar gauge was little changed at 99.17 as investors waited for this week's inflation data after strong US payrolls on Friday. An Orient Securities note said the August CPI release will likely decide whether the Fed lifts rates in September.